- Equinix (EQIX): This data center REIT is scaling up its business on a global scale.
- Lam Research (LRCX): A machinist that’s enjoying the robust demand for its semiconductor manufacturing equipment.
- SVB Financial (SIVB): A tech startup that’s benefiting from record levels of private equity and venture capital activity.
Stock splits involve dividing shares of a company into smaller pieces without changing its market capitalization (cap). While stock splits do not create any inherent value, they are historically regarded as bullish catalysts by investors. They help increase a stock’s liquidity, making it more affordable and attractive for smaller individual investors.
Academic research highlights that “splitting firms earn positive abnormal returns.” Businesses may choose to split shares for various reasons, usually announcing stock splits after long periods of solid returns. Wall Street typically associates stock splits with thriving companies that expect further increases in share prices.
In recent weeks, Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), and Tesla (NASDAQ:TSLA) shares have all soared following their upcoming stock split announcements. In other words, investors have been willing to bet that these three names will benefit form the decision.
With that information, here are three promising candidates that may be next in the line for stock splits.
Our first stock, Equinix (NASDAQ:EQIX), is one of the world’s largest global data center real estate investment trust (REITs). It focuses on digital infrastructure and global interconnection services. The company operates around 240 data storage facilities, serving a diversified tenant base of global enterprises in close to 30 countries.
Equinix issued Q4 and full-year 2021 results on Feb. 16. Annual revenue increased 11% year-over-year (YOY) to $6.6 billion. In 2021, adjusted funds from operations (AFFO), a key measure of REIT profitability, grew 12% YOY to $2.45 billion, or $27.11 per share. Cash and equivalents ended the year at $1.55 billion.
Management is scaling up the global REIT business, and has around 40 ongoing projects in 19 countries. On March 21, Equinix announced plans to acquire four data centers in Chile and Peru for $705 million. In 2022, this REIT is forecasting roughly 9% revenue growth and 8 – 9% AFFO growth.
EQIX stock is up 12.5% over the past year. Current valuation stands at 107.5 times forward earnings and 10.4 times trailing sales. Meanwhile, the 12-month median price forecast for Equinix stock is $840. We believe this REIT could be a split candidate.
Lam Research (LRCX)
Next up is Lam Research (NASDAQ:LRCX), a leading producer of etching and deposition machines critical for producing cutting-edge chips. Its semiconductor processing equipment solutions are used by foundry and logic chipmakers. Advanced memory manufacturers are also customer.
The chip heavyweight released fourth quarter 2021 results on Jan. 26. Revenue jumped 22% YOY to $4.23 billion. Adjusted net income came in at $1.2 billion, or $8.53 per diluted share, compared to $1.19 billion in the prior quarter. Cash and equivalents ended the quarter at $5.3 billion.
Leading foundries have announced ambitious multi-year spending plans that would not probably change even during a possible recession. Lam estimates its deferred revenue could continue growing, thanks to robust demand for its semiconductor manufacturing equipment.
Management anticipates revenue increasing 10% YOY to $4.25 billion. However, earnings are expected to fall due to rising costs resulting from supply chain constraints.
LRCX stock is down 27% year-to-date (YTD). Shares look like a bargain at 14.6 times forward earnings and 4.9 times trailing sales. At present, the 12-month median price forecast for LRCX stock stands at $725.
SVB Financial (SIVB)
Our third stock is SVB Financial (NASDAQ:SIVB). The group specializes in providing funding for entrepreneurs and start-ups in disruptive technology companies. SVB has a traditional banking business model focused on small and fast-moving start-up businesses.
Management issued Q4 2021 results on Jan. 20. Net interest income increased 10% YOY to $947 million. Meanwhile, net income came in at $371 million, or $6.22 per diluted share, down from $388 million in the prior-year quarter.
In recent quarters, SVB has benefited from record levels of private equity markets and venture capital activity, as well as rising interest rates. In 2021, net interest income increased 48% YOY to $3.2 billion. Management anticipates interest income rising in the high 30% range over the next year. Investment banking revenue is projected to increase at roughly mid-teens.
SIVB stock is up 13% over the past year. However, it has declined 19% YTD. Shares are trading at 19.4 times forward earnings and 5.7 times trailing sales. The 12-month median price forecast for SVB Financial stock is at $769.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.