Stock splits are a hot-ticket item in 2024. Companies from NVIDIA (NASDAQ: NVDA) to Walmart (NYSE: WMT) and Chipotle Mexican Grill (NYSE: CMG) to Broadcom (NASDAQ: AVGO) are doing it, citing the same reasons. The meteoric rise in their share prices makes the stocks inaccessible for smaller retail investors like their employees. They want to reduce the cost of ownership for them and for the market, increasing accessibility and ownership in these desirable names.
The takeaway for investors is that stock splits can create buy-the-dip opportunities in the underlying market, and companies that split their stock tend to see their stock prices outperform over time. A Bank of America study shows that split stocks tend to outpace the S&P 500 by more than 2:1, meaning investors wanting to beat the S&P need to include them in their portfolio.
The caveat is that a stock split does nothing to alter the fundamental realities of the investment. A company with a market cap of $1 billion is worth the same $1 billion if it floats 100 shares or 100 million. The same goes for a stock’s price. A 100% gain is still worth 100%, whether the stock is $10 or $1000; the only difference is you have to own more shares of the lower-priced issue to equal the investment return. That means it isn't the stock price but the company quality that counts. Here are three high-quality stock splits to put on your radar.
Cintas Already Announced a Split for This Year
Cintas (NASDAQ: CTAS) is no stranger to stock splits. The company has split its shares four times so far and has a fifth in the works. The split was announced earlier this year and, unlike others, has allowed ample time for the market to adjust. The split is due in early September and is expected to increase the count by 4x.
Why is Cintas splitting its shares again? After three decades of growth, business reinvestment, dividends, distribution growth, equity gains, and share repurchases, the stock price still trends higher and is above the $600 level. Based on today's share price, the split will reduce the per-share price to about $150, making a 100-share position worth about $15,000. That’s critical to options strategies like covered calls, sold in lots of 100 shares.
The business results are the primary drivers for Cintas' stock price rally. The company produces industry-leading growth and widens margins. The cash flow sustains a fortress balance sheet while the business reinvests and returns capital, which is why analysts and institutions love it. Analysts rate the stock as a Moderate Buy and are leading the market above the consensus target to the high end of their range near $750. The next visible catalyst is the Q2 earnings results, which are expected to be solid because labor market data is healthy.
Microsoft on Track for a Stock Split
Microsoft (NASDAQ: MSFT) had another game-changing year in 2023-2024, its third such year at least, sending its stock price to a new high and setting it up for a split. Its timely business shift to the cloud and leaning into AI set it up to be a leader in AI infrastructure, and the demand for AI services across the stack is reinvigorating growth. As large as it is, the company produces double-digit growth and has its stock trending higher. The latest action has the market above $450, heading toward the $600 region and into the " inaccessible " range for small retail investors. The company hasn’t mentioned another split yet but has a history of doing so.
Meta Platforms is the One to Watch for Stock Splits
Meta Platforms (NASDAQ: META) is not a stranger to stock splits, but the only ones it has ever made were before it went public. Meta Platforms is the only Magnificent Seven Stock to have never split its publicly traded stock, making it a high-profile candidate to split. The stock is already above $500 and tracking toward the $600 level, supported by analysts' revisions. Because of its results and analyst support, it may trend higher into the first half of next year.
The analysts' consensus price target assumes a fair value for the stock near $525. However, the consensus is up nearly 100% in the last twelve months, and the freshest targets range from $550 to $600, supported by robust growth, wider margins, and the first dividend in the company’s history. Those levels could be reached soon because the next catalyst will be the Q2 results released later this month. The analysts have been trimming their targets for revenue and earnings and setting the bar low, so outperformance is expected.
