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 Old Dominion Freight Line, Inc. (ODFL) and LKQ Corporation (LKQ).
Old Dominion Freight Line, Inc.
Old Dominion is the seventh largest less-than-truckload (LTL) motor carrier in the United States by revenue. Its trucks pick up shipments from multiple customers and then route that freight for delivery through service centers where the freight may be transferred to other trucks with similar destinations. Old Dominion made 7.3 million shipments in 2011; on average, its cargo weighed .85 tons and was transported 952 miles, slightly more than the length of the California coastline. It also offers logistics services including ground and air expedited transportation, supply chain consulting, transportation management, truckload brokerage, container delivery, and warehousing services.
In the second quarter, the overall LTL industry began to experience deteriorating freight volume due to weakness in the economy. However, ODFL was able to increase tonnage by 9% and keep its near perfect on-time performance record. Old Dominion continues to expand aggressively by building out its network of regional service centers which should prove positive for its service proposition and help win market share.
On August 13, 2012 the board of directors approved a three-for-two stock split effective September 7, 2012. This will be the fifth split in nine years. The company hopes to once again broaden the investor base as well as improve the market liquidity and trading volume of its common stock.
LKQ Corporation provides replacement parts, components, and systems needed to repair cars and trucks. It distributes aftermarket, recycled, and refurbished parts to collision and mechanical repair shops (a.k.a. body shops). The company’s wares cost less than new OEM products which creates an appealing value proposition. LKQ obtains the majority of its aftermarket inventory from auto parts manufacturers and distributors based in the U.S., Taiwan, Europe and China. Recycled automotive products are procured mainly by purchasing vehicles that have been severely damaged by collisions and then dismantling and inventorying the parts. LKQ indirectly relies on insurance companies as they ultimately pay for the majority of collision repairs for insured vehicles. Thus, the company has formed business relationships with certain insurance companies to become their preferred product supplier.
The stock has had a good run since second-quarter earnings were released in late July. Despite the fact that insurance carriers reported fewer claims in the second quarter, LKQ still managed to achieve the second-highest quarterly revenue result in company history. This was due to greater use of alternative parts by insurers looking to reduce claim cost, as well as LKQ's continued success in gaining market share. The company currently expects alternative part usage in 2012 to grow 100 basis points year over year. Revenue growth from acquisitions was 29% in the quarter and Value Line analyst Iason Dalavagas is looking for additional gains from recent acquisitions in Europe.
On August 17, 2012, LKQ’s board of directors approved a two-for-one split, its third one since the company went public in 2003. Each stockholder on record at the end of trading on August 28, 2012 is to receive an additional share for every share owned.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.