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Stock Screen: Upcoming Stock Splits - May 18, 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 are not 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. Some believe that pent up demand for what is already a dear stock, based on a relatively high price, will help move 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 evaluated.
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 FMC Corp. (FMC), AMETEK, Inc. (AME), and The Coca-Cola Company (KO - Free Coca-Cola Stock Report).
FMC Corp. produces a broad range of chemicals for industry and agriculture. Moreover, it is the world’s biggest producer of natural soda ash and is a major producer of phosphorus, hydrogen peroxide, agricultural chemicals, and lithium compounds. Foreign operations generated roughly 65% of total sales in 2011.
We anticipate good showings for FMC’s operations in the coming quarters. For a start, the Agricultural Products business stands to benefit nicely from favorable market conditions and growth in new and recently introduced products. Heightened spending on expansionary initiatives should also bolster results here. Furthermore, the performance of the Industrial Chemicals segment ought to be driven by strong demand and the continued product mix shift toward specialty peroxygens. Lastly, the Specialty Chemicals unit will likely be helped by higher selling prices for the BioPolymer and lithium product lines.
Meanwhile, the company has been taking steps to enhance shareholder value. In fact, it spent approximately $165 million last year to repurchase common stock. What’s more, the board of directors recently announced a 20% increase in the quarterly dividend, to $0.18 a share. Stock buybacks will probably continue to benefit earnings per share, and we look for further dividend hikes, as well. The company’s 2-for-1 stock split is set to take place on May 25th.
AMETEK is a manufacturer of electrical and electro-mechanical products and materials, with operations located in the United States, Europe, Asia, and Mexico. The company’s primary markets are aerospace, oil & gas, and power, which account for more than a third of total revenues, collectively.
We anticipate further improvement in the operating margin in 2012. Indeed, AMETEK’s businesses tend to perform nicely later in the economic cycle, as confidence and capital spending budgets expand. Particularly, the oil and gas industry is doing quite well in North America, as companies deploy resources toward nonconventional sources of oil, such as shale and sands. Management notes that the growth of the Canadian oil sands should provide a number of opportunities for the solid-state controls business unit. The company’s 2012 results should also benefit from effective cost controls in procurement and sourcing.
Meanwhile, the company has been on an acquisition spree. In fact, it spent almost $475 million on business combinations last year, with the biggest purchase being the O’Brien Corporation, a manufacturer of fluid and gas handling products, acquired for $175 million (O'Brien generated approximately $80 million in sales during 2011). We anticipate more deals down the road, made possible by the solid balance sheet, consisting of around $175 million in cash and equivalents and a manageable level of debt. AMETEK is splitting its stock 3 for 2 on July 2nd.
The Coca-Cola Company
Coca-Cola is the world’s largest beverage company, marketing over 500 nonalcoholic brands through a network of company-owned and independent bottlers/distributors, wholesalers, and retailers. Popular products include Coca-Cola, Sprite, Fanta, Dasani, and Minute Maid. Businesses outside of the United States accounted for about 60% of 2011 net sales.
Profit growth stands to accelerate a bit over the next few quarters. Much of the incremental cost pressure for key inputs last year occurred after March 31st. As such, margin comparisons should be less onerous going forward. What’s more, recent sales strength increasingly seems sustainable. In Europe, for one, Coca-Cola may continue to prove resilient, even as the region faces government-led austerity measures and weak consumer sentiment. Notably, integrated marketing campaigns around the London Olympics and the 2012 UEFA European Football Championship soccer tournament should provide eurozone sales a nice boost. At this juncture, we look for Coca-Cola’s bottom line to expand about 7% in 2012.
Demographic trends augur well for the beverage maker's long-term prospects. As more people in China, for example, move to cities and become part of the rapidly growing middle class, the convenience of ready-to-drink beverages should help to widen the company’s appeal. At the same time, ongoing investment in cold-drink vending machines ought to lead to a better overall sales mix and higher margins. That said, a pushback against sugary drinks by health-conscious comsumers may squeeze sales of established brands in developed markets. Coca-Cola will be executing a 2-for-1 stock split on August 13th.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.