Prediction of a Future Stock Split
Anthony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
This article will present the next company that I see poised to split its shares two for one. It will also look at the post-split price movements of some companies that have split their shares two for one recently. I am a firm believer that splitting shares is a superb way to enhance shareholder value. While some will say that all a split does is increase the number of shares outstanding, I believe that other factors occur that create value.
Over the long term, splitting shares is a valuable way to reward buy-and-hold investors. For example, if you bought 100 shares in 1970 that have split their way to 2,000 shares in 2013, I believe that more investors than not would have sold some if not all of the shares they had in 1970 and that the number of shareholders that have 2,000 shares in 2013 as a result of their 100 shares in 1970 would be few and far in between.
Johnson & Johnson (NYSE: JNJ) is a company I believe is a good investment because of its solid market position, and is the company I predict will split its shares two for one once again soon.
For this fiscal year, sales are expected to be $70.8 billion, which would be a 5.4% increase from the prior year. Steady growth in revenue has been consistent over the years, and has enabled to company to grow in price and thus split. This is the case for all three companies mentioned here.
For the first quarter of 2013, worldwide sales increased by 8.5% compared to the same period a year ago. Pharmaceutical revenue lead the charge, with its Stelara drug posting a 56.6% increase in sales. Zytiga increased in sales by 72%. In order for the company to continue growing, it needs to maintain its patented drugs as long as possible, and have successful new ones in the pipeline to take their place when they become generic-eligible.
Medical devices and diagnostics was another star segment in this first quarter of 2013, growing by 10.3% compared to the quarter ending in March of 2012. Continued growth in this segment could lead to expanding operations.
Management of Johnson & Johnson typically likes to split its shares two for one when share prices reach $100 or so. At least, this has been the case in the past. Its last two-for-one stock split was in June of 2001. In the latter part of March 2001, the share price was around $84 per share. The current stock price of Johnson & Johnson is around $84 yet again and its 52-week high was recently reached when the market peaked this year, and that was right around $90.
With Johnson & Johnson's earnings report for June of 2013 coming soon, I believe the company is one strong report away from being ready to split its shares. If the stock market reaches a new 52 week high, and/or the company shatters earnings estimates, it could bring the stock back to $90-$95 per share. News of an upcoming two-for-one stock split typically will also boost share prices, so a visit to $95 per share in price may compel management to pull the trigger on a split.
Share-price movements after recent splits
Here are two companies that have split their shares recently.
Whole Foods Markets (NASDAQ: WFM) recently split its shares two for one on May 30, 2013. I was happy to see this as I have been a long-term shareholder of the company and I now have twice as many shares.
The company is arguably the leader in the organic food revolution. It has seen its sale expand vigorously over the years as a result of more and more people shopping at the store for food. Perceived health benefits from organic foods have helped fuel this growth, with higher-income people tending to shop here more and more.
Sales are expected to expand to $13 billion this year, which would represent an 11.5% increase compared to last year. Next year, 14%+ is expected for sales growth. The company is growing and if it keeps up this pace, doubling its sales from here could happen in five years.
Whole Foods has opened 17 new stores in fiscal year 2013, as of May 7. Continuing success in this area is a key factor that can aid future growth.
Whole Foods had a blowout quarter for earnings that increased its share price by about 10% on May 8. That was also when the two-for-one stock split was announced. So far, its share price is almost exactly the same as it was on that day. That, however, is about a 15% increase from its share price as of Jan. 1, 2013. Also, the market has gone down a lot in the past few days, so the short-term results of its split so far are hard to see because of that. So far, so good for this split, and I am excited to see what the next 10 years will bring for this company.
Nike (NYSE: NKE) split its shares two for one on Dec. 26, 2012. That has given the company six months since its most recent split, and it has had great results for shareholders. Its stock closed the week of Dec. 24, 2012 right before the split was effective at $50.62 per share (adjusted). It closed the week of June 17, 2013 at $60.57.
Nike's share price has increased by about 20% in the six months since its stock split. Strong results have helped, but I would like to believe that part of it is that shares are more affordable for new investors to buy. Nike also likes to split its shares around the $100 mark, and it looks to be headed toward another long-term climb toward $100 per share and another split.
Nike has experienced many years of phenomenal growth due to its tremendous success in the shoe market, such as through its success with its Jordan brand. Having the best athletes in the world endorse its products has proven to be very profitable.
Revenue for Nike is expected to grow about 4% this year, and closer to 9% next year. If this growth continues, doubling of its current revenue will occur in the medium range.
I believe stock splits provide considerable value over the long run to shareholders. Johnson & Johnson is a company I believe will split its shares again soon.
For investors who are looking to buy a company before it announces a two-for-one stock split, it could be a great choice for you. This could especially be true because Johnson & Johnson is a strong blue-chip company with a long history of growing dividends and increasing share prices.
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Anthony Parsons owns shares of Johnson & Johnson and Whole Foods Market. The Motley Fool recommends Johnson & Johnson, Nike, and Whole Foods Market. The Motley Fool owns shares of Johnson & Johnson, Nike, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!