There has been no shortage of news events that have captivated Wall Street and investors over the first three months of 2022. The ongoing COVID-19 pandemic, the invasion of Ukraine by Russia, and a complete 180 on monetary policy from the Federal Reserve are just some of the catalysts and events responsible for whipsawing equities.
But amid this mountain of data, a trend has emerged that gained a lot of notoriety in the summer of 2020: Stock-split mania.
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Brand-name companies are capitalizing on stock split euphoria
Over the past two months, three well-known companies have announced their intention to conduct a forward stock split, with the approval of their shareholders. A stock split allows publicly traded companies to alter their share price and outstanding share count without having any effect on their market value or the performance of their underlying business.
It began with Alphabet (GOOGL 0.55%) (GOOG 0.74%), the parent company of internet search engine Google and streaming platform YouTube. On Feb. 1, Alphabet announced that its board had approved a 20-for-1 stock split that, if approved by shareholders, would take effect in mid-July. Each share of Alphabet owned would increase by a factor of 20, while the company's share price would fall to 1/20th its current level (about $142.50 for a Class A share, GOOGL).
Next up was e-commerce giant Amazon (AMZN -1.64%), which announced its intention to also conduct a 20-for-1 stock split. If approved by shareholders, Amazon's split would take effect in early June and reduce its share price to approximately $169. For retail investors without access to fractional share purchases through their online brokerage, this stock split could allow a number of them to buy into Amazon (and Alphabet) for the first time.
Less than a week ago, it became electric vehicle manufacturer Tesla's (TSLA 12.06%) turn. Tesla and Apple kick-started the stock split euphoria in the summer of 2020, and the former has returned to potentially capitalize on investor excitement surrounding another split. Tesla didn't announce what type of forward split it would be seeking, but did note that shareholders would vote on its approval. That'll likely occur many months down the road during the company's annual shareholder meeting.
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Which companies are next to enact a stock split?
With widely owned, brand-name companies seeking to cash in on stock split euphoria, it begs the question: Which companies are next?
The following three would appear to check all the appropriate boxes.
Broadcom
The first high-flying stock that would seem a logical candidate to announce a stock split is semiconductor solution company Broadcom (AVGO 0.61%). Broadcom was acquired by Avago Technologies in early 2016, with the combined company keeping the Broadcom name. While Avago never split its stock, Broadcom has on three separate occasions (1999, 2000, and 2006).
The most obvious reason for Broadcom to split is its share price, which has risen by a factor of 20 over the past nine years. As of March 29, a single share of Broadcom would set investors back more than $641. Even though quite a few online brokerages now allow fractional-share investing, saving up $641 and change to purchase a single share of Broadcom could be difficult or impossible for some retail investors. A forward stock split would make the company's shares far more retail-friendly.
There's also a good likelihood that Broadcom's share price will head even higher thanks to its strong operating performance. This is a company that generates most of its revenue from wireless chips used in next-generation smartphones. 5G wireless infrastructure upgrades (and the subsequent rollout of 5G smartphones), coupled with global supply chain challenges, have resulted in the company booking production through 2022 and into 2023, according to CEO Hock Tan. As of the end of 2021, the company's backlog stood at $14.9 billion.
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AutoZone
A stock split announcement would also make a lot of sense for automotive replacement parts company AutoZone (AZO 0.93%). AutoZone last split its stock 28 years ago, with its shares rising from approximately $29 to $2,078 over that 28-year stretch.
If you thought Broadcom's $641 share price locked some investors out of owning its stock, imagine what a nearly $2,100 share price can do! A substantive forward stock split from AutoZone would make its shares much more affordable for retail investors who don't have access to fractional-share purchasing. It would also almost certainly increase the company's daily trading volume, which could put it on the radar for more investors.
As I've previously opined, AutoZone's unwillingness to split its shares for the past 28 years potentially stems from its aggressive share repurchase program. Since fiscal year 1998, AutoZone has repurchased $28.2 billion of its own shares, and authorized $31.2 billion for repurchases. Over that time, the company's outstanding share count has fallen from around 150 million shares to fewer than 20 million. Conducting a stock split would increase the outstanding share count and nominally mask the progress made on the share repurchase front since 1998.
However, with fewer than 20 million shares outstanding, AutoZone will soon be limited with regard to the number of shares it can buy back. A stock split may soon be necessary if the company wants to continue bolstering shareholder value with buybacks.
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Costco Wholesale
The third and final stock that could be next to announce a split is warehouse club Costco Wholesale (COST 0.17%). Costco has split its shares four times, but last did so in January 2000.
The common theme with this list is that these companies have share prices that are prohibitively high for investors who can't buy fractional shares. In Costco's case, its shares have skyrocketed from around $50, when it last conducted a forward split 22 years ago, to $570, as of March 29. Costco is a brand-name company that more retail investors would probably buy into if it was more affordable on a nominal basis.
Like Broadcom, Costco is firing on all cylinders and has a reasonably good chance of seeing its already high share price rise even more over time. Through the first 24 weeks of fiscal 2022, Costco reported comparable-store sales growth of 14.7%. With domestic inflation soaring, consumers are looking to Costco now more than ever for good deals. Because Costco buys in bulk and nets a lower cost per unit as a result, it's often able to pass along these savings to its members.
Costco's membership model has its perks, too. The annual fees from memberships further buffer its margins and allow it to undercut other retailers on price. This makes it likelier that members will view Costco as their one-stop shop for groceries, and even some discretionary items.
Now looks like as good a time as any for Costco to join the recent stock split announcement parade.
