Oct. 23 (Bloomberg) -- Initial public offerings in the U.S. are suffering the worst returns since at least 1995 at the same time that the stock-market rally is spurring the most new listings in almost two years.

The IPOs of 15 American companies since September have beaten the Standard & Poor’s 500 Index by 2.3 percentage points on average in the first month of trading through yesterday, the smallest margin in Bloomberg data going back 14 years. Offerings by U.S. companies have beaten the S&P 500 by an average 21.3 percentage points after their listings, the data show.

While investors participating in more than half of the sales since September are sitting on losses, sellers from Cerberus Capital Management LP to Welsh Carson Anderson & Stowe have reaped $6.7 billion taking companies public. Cambiar Investors and Huntington Asset Management say IPOs won’t produce outsized gains when many companies are weighed down by debt.

“The IPOs you can get, you don’t want, and the IPOs you want, you can’t get,” said Brian Barish, president of Denver- based Cambiar Investors, which oversees about $5.5 billion. “There have been some pretty junky deals that have come out.” Barish’s $1.08 billion Cambiar Opportunity Fund has beaten 98 percent of rival funds over the past year.

The amount raised in IPOs since September accounted for almost two-thirds of this year’s $10.8 billion in sales. The last time more U.S. companies went public over a two-month period was in January and February 2008, when there were 16, data compiled by Bloomberg show.

IPO Price Cuts

Dole Food Co., the world’s largest producer of fresh fruit and vegetables, adds to the IPO tally after raising $446 million in an initial offering late yesterday. The Westlake Village, California-based company was the fifth U.S. company to cut its IPO price since September, getting $12.50 apiece for its stock.

The food producer, valued at $1.09 billion after the offering, declined 1.8 percent to $12.28 in New York Stock Exchange composite trading. The company had sought $13 to $15 a share, according to its prospectus.

IPOs evaporated in the fourth quarter of last year, after New York-based Lehman Brothers Holdings Inc. filed for the world’s biggest bankruptcy and caused a credit-market freeze. Only one company, Phoenix-based Grand Canyon Education Inc., sold stock in the last three months of 2008.

The drought lasted until September as an average of two U.S. companies a month went public, the slowest pace since at least 1995, Bloomberg data show.

‘Pretty Much Stretched’

IPOs picked up after the S&P 500 climbed more than 50 percent from a 12-year low in March and the U.S. government lent, spent or guaranteed $11.6 trillion to shore up banks and revive the economy. The advance restored about $4.9 trillion of market value to U.S. companies, while money managers became less reluctant to pay for future earnings, the data show.

The S&P 500 is now valued at an average of 14.1 times each dollar of profit that analysts estimate the index’s companies will earn next year, data compiled by Bloomberg show. That’s 60 percent more than the price-earnings ratio of 8.8 in March and the biggest premium for future growth since the end of 2007, just before stocks began their steepest annual drop since 1937.

“The IPOs are being done at a time when the ability to surprise on the upside is very difficult,” said Peter Sorrentino, who helps manage $13.8 billion at Huntington Asset in Cincinnati. “We’ve looked at the few deals that have been done out there and looked at the valuations. The valuations are pretty much stretched.”

Trailing the S&P 500

The revival hasn’t coincided with bigger returns. Before September, the average U.S. company selling shares to the public this year gained 8.8 percent in the first month, beating the S&P 500 by 6.9 percentage points, data compiled by Bloomberg show.

Since then, eight of the 15 IPOs by U.S. companies have slid, while 10 lagged behind the S&P 500 prior to Dole’s IPO, according to data compiled by Bloomberg.

The data is based on the average difference between the performance over the first month of each company that sold shares since September and the gain or loss of the S&P 500 over the same span, and excludes foreign companies that raised capital in IPOs on U.S. exchanges.

The 2.3 percentage point return above the S&P 500 for IPOs since September is 19 percentage points less than the annual historical average, data compiled by Bloomberg show. Between 1995 and 2000, shares of IPOs advanced 40 percent during their first month, trouncing the S&P 500’s 1.3 percent average gain.

Rose-Colored Lenses

“It’s likely that the IPO sold on a rosy scenario and all of a sudden, the expectations aren’t met and people want out,” said Chris Kelly, who advises bankers and companies on IPOs as head of capital markets for law firm Jones Day. “It could be a manifestation of people getting optimistic, but then reality sets in and things really aren’t getting much better. My own view is that I don’t even know why the market is going up and neither do a lot of the bankers.”

Vitacost.com Inc., the Boca Raton, Florida based-online wholesaler of nutritional supplements, raised $132 million on Sept. 23 selling 11 million shares at $12. The shares closed at $10.59 on Oct. 21, for a loss of 12 percent over the first four weeks, data compiled by Bloomberg show.

About $73.3 million will go to shareholders cashing in their stakes, according to Vitacost.com’s regulatory filing.

Vitacost.com founder and former Chief Executive Officer Wayne Gorsek sold 2.35 million shares in the IPO for $28.2 million, reducing his stake in the company to 17.4 percent. CEO Ira Kerker and Chief Financial Officer Richard Smith together made $1.72 million.

Underwriter Fees

The lead underwriters, New York-based Jefferies Group Inc. and Oppenheimer Holdings Inc., collected a combined 7 percent fee on the sale, versus the average 5.47 percent since 1999. The remainder of the proceeds from Vitacost.com’s IPO will pay down debt, buy manufacturing equipment and cover other expenses, the company said in its offering document.

Vitacost.com, which made $12.52 million in operating income in the 12 months ended June 30, is valued at 22.9 times earnings. The wholesaler was priced at 26.4 times, a 6 percent discount to the S&P SmallCap 600 Index, whose companies have a median market value of $583 million and traded at 28.1 times.

The five initial sales by private-equity firms since September haven’t fared much better. As of yesterday, two have beaten the S&P 500, while two -- Select Medical Holdings Corp. and Jacksonville, Florida-based RailAmerica Inc. -- have fallen below their IPO prices.

LBO to IPO

“The dynamics for a healthy IPO market just aren’t there,” said Jonathan Vyorst, senior vice president at New York-based Paradigm Capital Management Inc., which oversees $1.7 billion. “A lot of the new issues this year are from LBOs that happened a few years ago and the debt burdens are pretty heavy. That’s going to make people stop and think.”

Select Medical, a hospital operator owned by Welsh Carson Anderson & Stowe and Thoma Cressey Bravo LLC, lost 2.8 percent in the first four weeks since the IPO, while the S&P 500 gained 4 percent.

The Mechanicsburg, Pennsylvania-based company sold 30 million shares for $10 each on Sept. 24 after cutting the size of its IPO by almost half and chopping the price from as high as $13 apiece. The $300 million in proceeds will mostly be used to trim debt, according to a regulatory filing.

That leaves about $1.44 billion in debt, most of which came from $1.5 billion in financing that New York-based Welsh Carson and Thoma Cressey of Chicago used to purchase Select Medical in February 2005.

Caveat Emptor

The private-equity firms will have 62 percent of Select Medical after the IPO, which is currently valued at about $970 million. That’s 57 percent more than the $617 million initial cash investment, regulatory filings show.

Select Medical trades at 17.1 times next year’s profit, based on a per-share estimate of 57 cents from Pali Capital LLC’s New York-based Sheryl Skolnick, one of two analysts that cover the company, data compiled by Bloomberg show. That’s more expensive than the average 13.4 times estimated profit of competitors in the U.S., Bloomberg data show.

RailAmerica, the railroad operator owned by New York-based Fortress Investment Group LLC, has slipped 8.9 percent to $13.67 after cutting its IPO price to $15 a share from as much as $18.

“That’s exactly the kind of company that you want to be pushing out right now if you own it as a private-equity investor,” said Joseph Kremer, director of mid-, small- and micro-cap value strategies at Fifth Third Asset Management, which oversees $18.6 billion in Cleveland. “It’s a company that could certainly improve overtime, but the fact of the matter is they weren’t the cream of the crop.”

The Winners

Kremer said he was approached by bankers about buying into the RailAmerica IPO and declined to participate.

Two of the largest companies that sold shares to the public, Jersey City, New Jersey-based Verisk Analytics Inc. and Education Management Corp. of Pittsburgh, have climbed 27 percent and 38 percent since their IPOs, each beating the S&P 500 by at least 25 percentage points, Bloomberg data show.

Verisk’s owners, including American International Group Inc. and Travelers Cos. of New York, and Hartford, Connecticut- based Hartford Financial Services Group Inc., raised $2.16 billion on Oct. 6 and Oct. 7 in the biggest U.S. IPO since San Francisco-based Visa Inc. in 2008. Verisk, which didn’t receive any proceeds, sold 98 million shares at $22 apiece, above the $19 to $21 range it sought.

Goldman’s Wager

Education Management, the college operator owned by Goldman Sachs Group Inc. and Leeds Equity Partners in New York, and Providence Equity Partners of Providence, Rhode Island, trimmed its IPO by 10 percent and sold stock at $18 apiece, the low end of its $18 to $20 range.

The company raised a total of $414 million after its underwriters exercised an option buy 3 million more shares.

“There’s a handful of good companies out there with good management teams and great long-term prospects,” said Chris Retzler, who manages $350 million at the asset management unit of New York-based Needham & Co. and bought shares in Verisk’s IPO. “I just don’t think the recent IPOs are junky deals.”

Gains for investors of IPOs sold by private-equity firms are dwarfed by those made by the buyout firms themselves.

Talecris Biotherapeutics Holdings Corp., the drugmaker controlled by Cerberus and Ampersand Ventures, has gained 2.6 percent since its IPO on Sept. 30.

20-Fold Returns

At $19 a share, the $950 million offering by the owners of the Research Triangle Park, North Carolina-based maker of protein therapies provided New York-based Cerberus and Ampersand a $300 million profit for their investors. That excludes the 56 million additional shares the underwriters purchased in the IPO.

Cerberus and Ampersand of Wellesley, Massachusetts, created Talecris after buying Bayer AG’s plasma business in 2005. At the time, the firms invested a combined $125 million in cash and the purchase was valued at $590 million.

Since then, Talecris has paid its owners at least $833.2 million in dividends, mainly funded by $1.35 billion in borrowing. Including the payouts, the two firms have earned 20 times their initial cash investment.

To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.

Last Updated: October 23, 2009 17:13 EDT