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Stock Screen: Upcoming Stock Splits - June 27, 2012
Investors looking for positive indicators of a stock’s future performance often consider a stock split a good sign. As a technical matter, a stock split changes nothing about a company’s performance or value. True, per share numbers must be adjusted, but the underlying revenues and profits aren’t altered—just the per share statistics. Still, companies often split their shares when their stocks have appreciated to the point where investors may question an investment because of limited capital. So, by splitting the shares, the stock becomes more appealing to a broader group of investors and, it is believed, that pent up demand for what is already a dear stock, based on a relatively high price, will help spur the price higher after the split.
Of course, stock prices don’t always continue to ascend after a stock split. And, there are times when companies with low share prices use reverse stock splits to boost share prices above exchange minimums so that they may remain listed. So, a stock split is not the sole criteria by which a company should be judged. That said, it is an interesting indicator that more research about a company could be worthwhile.
Every week on the back page of the Ratings & Reports section of The Value Line Investment Survey is a list of upcoming stock splits. Some upcoming stock splits to consider are Brown-Forman ‘B’ (BF/B), CME Group (CME), and Under Armour Inc. (UA).
Founded in 1870, and based in Louisville, Kentucky, Brown-Forman engages in the manufacturing, marketing, bottling, importing, and exporting of alcoholic beverages. Products are offered under various brand names, including Jack Daniel’s, Southern Comfort, Finlandia, Canadian Mist, and Korbel. The company sells to wholesale distributors, and state governments, with markets primarily in the United States, Australia, the United Kingdom, Mexico, Poland, Germany, France, Canada, Japan, Spain, Italy, Russia, and China.
The company has had a troublesome past few months, with higher input expenses hurting the bottom line. That said, Brown-Forman should see some upside in the near-future, with plans to increase prices on major products and offer less promotional discounting.
Management hopes to reinvigorate the portfolio and add new customers with new product rollouts such as Jack Daniel Honey as well as Fiery Pepper Southern Comfort and Cherry Southern Comfort, flavored whiskey blends. Initial target markets are the U.S., South Africa, and Australia. The company also intends to reduce debt this year, which would allow for a stronger balance sheet, enabling more acquisition-related growth.
In mid-June, the Board of Directors approved a three-for-two stock split for all shares of Class A and Class B common stock to be paid in the form of a stock dividend. The split was subject to approval at the annual meeting of stockholders that took place yesterday, July 26th. If it was approved, Brown will distribute one additional share of stock for every two shares held on August 10th, for those shareholders on record as of August 3rd. Paul Varga, the company's Chief Executive Officer said, "The recommended three-for-two stock split reflects the company's continued confidence in our ability to generate long-term growth in both earnings and cash flow, and would mark the sixth split in the last 35 years."
CME was founded in 1898 as a not-for-profit corporation. In 2000, it became a shareholder-owned entity and adopted a for-profit business model, including strategic initiatives aimed at optimizing trading volume, efficiency and liquidity. In 2002, Chicago Mercantile Exchange Holdings Inc. (CME Holdings) completed its initial public offering. In 2007, CME Holdings merged with CBOT Holdings, Inc. and was renamed CME Group. It acquired the Chicago Board of Trade (CBOT) in the deal, a leading marketplace for trading agricultural and U.S. Treasury futures and options. In 2008, it merged with NYMEX Holdings, acquiring the New York Mercantile Exchange (NYMEX, energy futures and options contracts) and Commodity Exchange (COMEX, metal futures and options) in the process. CME Group also owns and operates CME Clearing and offers market data services consisting of live and delayed quotes, as well as market reports and historical data services. The customer base includes professional traders, financial institutions, institutional and individual investors, corporations, manufacturers, producers, and governments.
CME Group has been facing a tough operating environment over the past few months, with difficult macroeconomic headwinds, and tighter credit conditions in the euro zone. But several cost initiatives are set to boost the bottom line, despite these pressures. The company has also acquired GreenX Holdings, which should help diversify its portfolio. Meanwhile, CME Group might be placing a bid for the London Metal Exchange to expand its holdings. In the future, management anticipates focusing on technological innovation, as well as improving operational efficiency, in order to bolster the top and bottom lines. All in all, the company is well positioned to benefit from its various investments over the next few years.
In late May, the board declared a five-for-one split in the form of a 400 percent stock dividend. The dividend will be paid on July 20, to shareholders of record on July 10. Executive chairman and president Terry Duffy said, “We believe that splitting CME Group stock will appeal to a broader, more diverse mix of investor portfolios…By making our shares attractive to more people, we have potential to further expand the base of ownership."
Under Armour Inc.
Founded in 1996, and located in Baltimore, Maryland, Under Armour, Inc. designs, develops, markets, and distributes apparel, footwear, and accessories for men, women, and children around the world. Apparel products are offered in three variations: compression, fitted, and loose and are designed to work in a variety of temperatures. The sports that UA focuses on are football, baseball, lacrosse, softball, soccer. Accessories include gloves, socks, uniforms, hats, and bags. The company sells its products primarily with its UA and Under Armour labeling to college athletic departments, league teams, sporting goods chains, and department stores.
The past few months have been quite good for Under Armour. Product innovation has driven up the top and bottom lines, with healthy demand for all of the company’s offerings. That said, higher costs (which are likely to continue to grow over the next few quarters), along with bloated inventory levels, may hinder earnings for the 2012-2013 period. Management is already working on combating these negatives, however, by working down inventories and making supply chain improvements.
On June 11th, UA announced that its Board of Directors approved a two-for-one stock split. The split will be effected in the form of a dividend of one share of Class A Common Stock for each share of Class A Common Stock outstanding and one share of Class B Common Stock for each share of Class B Common Stock outstanding. The additional shares issued as a result of the split will be distributed on or about July 9, 2012 to stockholders of record on June 25, 2012. Kevin Plank, Chairman, CEO, and President of Under Armour, Inc., said, "We are proud of the value we have delivered to our stockholders over the long-term, and we believe this stock split may broaden our investor base and improve the trading liquidity of our stock." This will mark the company's first stock split since going public in November 2005.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.