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Stock Screen: Upcoming Stock Splits - March 6, 2013
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 Jarden Corp. (JAH) and Trimble Navigation (TRMB).
Jarden Corp. makes and sells niche consumer products. Some of its key brands include Mr. Coffee, Sunbeam, Pine Mountain, and Crawford. The largest division, Outdoor Solutions, generated about 40% of total revenues in 2012, followed by Consumer Solutions (29%), Branded Consumables (26%), and Process Solutions (5%).
The company will probably continue to focus on bolstering its market share. Ongoing innovations have helped Jarden strengthen its product lineup. Likewise, cross-promotional marketing efforts should benefit the various business lines. What’s more, management is considering tuck-in acquisitions to complement the current portfolio, with a focus on expanding Jarden’s presence in overseas markets.
But leveraged finances are a concern. Although Jarden has used some of its cash to bolster the balance sheet, long-term debt accounted for roughly 65% of total capital at the end of 2012. Still, the company issued a $500 million convertible note offering several months ago to help pay down some higher-interest obligations, and it is likely to do more refinancing. On the other hand, the company eliminated its dividend program earlier last year to help free up resources.
The stock price has soared to historic highs over the past few months. It seems that movement can be attributed partly to the company’s strong results in the final quarter of 2012. But these shares are already trading close to our 2016-2018 Target Price Range, resulting in moderate capital appreciation potential over that time frame. The higher-than-market Beta coefficient is another factor to bear in mind.
The details of the stock split were released on February 14, 2013. Stockholders that were on record at the close of business on February 25, 2013 will receive one additional share of common stock for every two shares owned on March 18, 2013. The company’s Chairman Martin E. Franklin went on to say, "The stock split reflects the confidence the Board and management have in our business strategy and ability to continue Jarden's positive performance over the long term. (The) stock split represents our fourth since 2002."
Trimble Navigation provides advanced positioning solutions (such as GPS, lasers, and optics) to both commercial and government users in a number of markets, including surveying, construction, and military. Foreign operations account for roughly 55% of total revenues.
Management is exploring several expansion avenues. At the forefront, Trimble is working towards creating more technologically advanced features for its mapping and construction products. Such initiatives are aimed at creating more cost effective solutions for customers, which include those in the Field Solutions or Engineering and Construction units. Demand for higher technology is notably elevated in the latter segment, both in North American residential and commercial construction.
The market has been enthusiastic about the stock lately. Indeed, investors are impressed with the healthy operating results the company has posted in recent quarters. And, despite continued macroeconomic pressures, especially in Europe, Trimble appears positioned to perform well over the near term. Catalysts should continue to include a favorable product mix, a more rational pricing environment, and contributions from acquisitions. Nonetheless, it appears that much of the good news surrounding the company is already reflected in these shares’ current quotation. Consequently, capital appreciation possibilities over the 3- to 5-year period are limited, when compared to the Value Line median.
On February 11th Trimble made the following announcement: "The Board of Directors approved a two-for-one split of all outstanding shares of the Company's Common stock. The record date for the stock split is expected to be Mar. 6, 2013 with new shares expected to be distributed on or about Mar. 20, 2013. Each shareholder of record on the close of business on the record date will receive one additional share of common stock for each share held."
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.