Stock splits can be undertaken for several reasons. They can bring a stock's price down to make it more affordable for a wider range of investors. They can increase a stock price if it's too low, which can be useful if a company trades as a penny stock, because some investors have a policy about not buying penny stocks. Stock splits can also be used in a company's effort to return capital to shareholders.
The important thing to remember is that while stock splits change the share count and share price, they don't by themselves change the market capitalization of a company (and, therefore, your equity position) if you happen to own a stock prior to the split.
Regardless, they are usually done for a reason, and it could signal a change in company strategy. Here are two recent stock splits you've likely never heard of yet, but certain Wall Street analysts think these companies could soar over the next year or so.
Qiagen -- 39% potential upside
Molecular testing company Qiagen(NYSE: QGEN) conducted a stock split on Jan. 7. Management executed a synthetic share repurchase, which involves repurchasing capital and also conducting a reverse stock split. The company spent $300 million to repurchase shares and reduced the share count through the reverse split. Synthetic share repurchases allow companies to return capital faster, and shareholders simultaneously maintain a proportional ownership.
Based in the Netherlands, Qiagen provides solutions that enable more holistic testing of patients by medical professionals, so they can better distinguish and diagnose diseases, and watch the immune system more effectively. For instance, the company can quantify the DNA and RNA of viruses, bacteria and parasites, which is helpful when there is no reference material. The company also provided COVID-19 testing during the pandemic's height and continues to do so today.
In the fourth quarter of 2024, Qiagen grew its adjusted earnings by 11% year over year, while growing free cash flow by 43%. Analysts seem to like what they see. According to TipRanks, 10 Wall Street analysts have issued research reports over the last three months. Five say to buy the stock, while five say to hold. The average price target implies nearly 25% upside. The most bullish target of $55 implies nearly 39% upside.
Jefferies analyst Tycho Peterson recently assumed coverage of Qiagen with a "buy" rating and $54 price target, citing a strong position and execution in the molecular diagnostics and life science sample prep market. Peterson is modeling double-digit earnings growth through 2028.
Meritage Homes -- 62% potential upside
Meritage Homes(NYSE: MTH) is the fifth-largest homebuilder in the U.S. The company completed a 2-for-1 stock split on Jan. 2. The company increased the share count by issuing a stock dividend. Stock dividends dilute shareholders because there are now more shares in circulation. However, shareholders will now reap more in dividends, and stock dividends are not taxed until the shares are sold. Companies can use stock dividends to better maintain their current cash position.
Meritage designs and builds single-family, entry-level and larger attached and detached homes, primarily in high-growth states like Arizona, Colorado, Utah, Texas, Florida, Georgia, North Carolina, South Carolina, and Tennessee. The company also provides title, escrow, mortgage, and insurance services.
In 2024, Meritage closed on over 15.6 million home sales, up 12% year over year. Diluted earnings per share also climbed 8% to $21.44 . Management continues to focus on its strategy of providing affordable, move-in ready homes. The company also experienced a record conversion rate in terms of sales in in the fourth quarter.
Seven analysts have issued research reports over the last three months, according to TipRanks. Three analysts say buy, three say hold, and one says sell. The average price target implies nearly 35% upside.
The most bullish price target is $118, implying nearly 62% upside from current levels. In early January, UBS analyst John Lovallo reiterated his "buy" rating on the stock and issued that $118 price target. It's based on the belief that a favorable backdrop for homebuilders could emerge in 2025, with market sentiment shifting and large homebuilders primed to take share from smaller competitors.
Unfortunately, economic data recently suggests that interest rates may stay higher for longer. This could put a dent in some of Meritage's momentum, although the company seems to be executing well.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group. The Motley Fool recommends Meritage Homes. The Motley Fool has a disclosure policy.
