Fools know the value of a stock split: zero. It's a non-event. Instead of a $20 bill in your wallet, you now have two $10 bills. So if they mean nothing, why do them? There are a few reasons, none of which has anything to do with whether the stock is a good investment. Here are the usual ones:
To make the stock look cheap.
To increase liquidity.
To meet stock-exchange listing requirements.
To express a bullish management sentiment.
Regardless of the reason, though, markets tend to view splits as positive events, and a company's shares can get a short-term boost from the news. But if the company isn't a good, long-term business, it doesn't matter if its shares split, or whether you buy them before or after they do.
That's why we pair up stock-split announcements with the sentiments of more than 180,000 members of Motley Fool CAPS. If the best stock pickers think a company's long-term potential is outstanding, and the company is giving off bullish signals, then maybe investors should take notice.
Here is a list of stocks that have either recently split their shares or announced their intention to do so.
CAPS Rating(out of 5)
Current Share Price
Eastman Chemical (NYS: EMN)
Oct. 3, 2011
Polaris Industries (NYS: PII)
Sept. 12, 2011
Quality Systems (NAS: QSII)
Oct. 26, 2011
Don't blindly buy into a split -- you still need to do some research. Instead, use the announcement as a jumping-off point for additional research.
A chemical reaction
Created to make products for iconic film and camera maker Eastman Kodak (NYS: EK) in 1920, global chemical specialist Eastman Chemical finds itself in much better financial shape than its former parent. Where Kodak failed to innovate fast enough to meet a changing competitive landscape, the latter has become a leading provider of pioneering products with a leading market share position in many of its key areas.
Eastman's performance chemical business has been its strongest and fastest-growing segment, led by the demand for plasticizers -- plastic additives used to increase flexibility and durability -- used by the medical, pharmaceutical, and food and beverage industries. For example, Eastman provides the plasticizer used by Anheuser-Busch InBev (NYS: BUD) for the plastic liners under its bottle caps. Last quarter, plasticizer volume growth provided much of the spark behind Eastman's 35% increase in segment revenues.
With the company reporting earnings next week, analysts expect profits to slip from the year-ago period as the economy still tries to get its bearings, but for the full year, they forecast earnings to be 31% higher than in 2010. It was the stronger performance the company enjoyed that had it splitting the stock and increasing the quarterly cash dividend by 11%, the second time in less than a year that it raised its payout. At less than $70 per share pre-split, however, I'm not sure it was an essential maneuver, but management is indeed bullish on the future.
They are also about to raise their dividend to 52 cents per share. They have also recently announced a 2:1 stock split, which means more people can afford to buy the stock which i beleive will ultimatly make the stock more valuable in the end.
Add Eastman to your watchlist to keep abreast of developments, and see what others are saying on the Eastman Chemical CAPS page.
Management at recreational vehicle maker Polaris Industries might have wanted to take Wall Street's bull by the horns when it split its shares last month, but its earnings report earlier this week led to its getting gored despite a hefty quarterly profit and raising full-year guidance.
No doubt it was caught up in the stampede as rival Harley-Davidson (NYS: HOG) disappointed the market the day before, but the outsized third-quarter profits actually translated into anticipated lower fourth-quarter results. As this was coupled with an outlook that implies a tough 2012, investors sold the stock off, sending it down 7% on Tuesday.
CAPS All-Star bhcarp likes Polaris' dividend, which is currently yielding 1.7% and which no doubt forms at least part of the reason why 87% of the broader CAPS community rating the rec vehicle maker believe it will outperform the broad market averages.
Tell us in the comments section below or on the Polaris Industries CAPS page why it ought to ride out the suspected downturn, and add it to your watchlist to see if it ultimately fuels a new growth phase.
Bits and bytes
A recent hospital stay gave me the opportunity to see how prevalent Siemens (NYS: SI) products were in the health-care field. As ubiquitous as the company is, it also relied upon partners to fill in the gaps, like turning to Quality Systems for electronic medical record systems. But an analyst says Siemens is going it alone in some areas, and Quality Systems may lose customers and sales as a result.
What's driving the split (of the Siemens partnership) is the expansion of electronic health records and their "meaningful use" by providers. The Centers for Medicare & Medicaid Services adopted new rules that went into effect this year, providing cash incentives for providers to use certified EHR technology in meaningful ways, such as electronically capturing health information in a coded format to track key clinical conditions and communicate the data to coordinate care.
Those rules also helped drive Quality Systems' revenues 21% higher in the first quarter, and is why luremaster considers QSI "a leader in health care software." It's also part of why 97% of the nearly 2,200 CAPS members rating the electronic medical-record leader think it will continue to beat the Street. But add the stock to the Fool's free portfolio tracker to see if it can grow as fast without Siemens.
Split the difference
Head over to the completely free CAPS service and let us hear what you've got to say about these or any other stocks that you think we should split hairs over.
At the time thisarticle was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Quality Systems. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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