SONNY --- Good Title for this article ---
January 18, 1999
Splitsville: A List Of Possibilities
Long term, divided shares perform better
By Shirley A. Lazo
The bull market has made stock splits a common occurrence. Many financial
types maintain that stock splits are nothing more than smoke and mirrors. Many
investors, though, disagree. Rather, they see a split as a signal of general
corporate optimism. True, a split or stock dividend doesn't boost one's
proportionate ownership (although it may afford a psychological high). Nor does
it enhance a company's earnings prospects or its cash flow. However, stocks
that split, studies have shown, tend to do better than the general market over the
longer term. Standard & Poor's got up a list of companies that are likely to
divide their shares in the next six to 12 months.
Through the end of November, 210 companies whose stocks trade on the Big
Board split their shares at least 3-for-2. S&P thinks it's likely that full-year 1998
splits will equal or surpass the 1997 record of 235. The previous peak was
1983's 225. The reason stocks that split generally outperform the market is
"because companies that declare splits usually are enjoying rising earnings, and
management is confident that profits will remain in an uptrend," the investment
advisory firm said. "At the same time, a split is often accompanied by a dividend
hike. In addition, smaller investors are attracted to the stock because of the
lower price."
Two of the names on S&P's list of 24 already have announced splits. Tuesday,
Yahoo, which was recently quoted at $320 a share, declared a 2-for-1 division
after announcing that fourth-quarter profits had beat analysts' consensus
estimates by a nickel a share and that revenues had tripled. And Compuware
on January 7 voted a 2-for-1 split.
Yahoo gets the maximum five S&P STARS (the acronym stands for stock
appreciation ranking system). Others with that designation, indicating they're a
"buy," are Becton Dickinson, Biogen, Costco, International Business Machines,
Kroger, MCI WorldCom, Nokia, Pfizer and Tyco International.
Those joining Compuware with four STARS ("accumulate") include America
Online, Equifax, Lowe's, Solectron, Viacom and Xerox.
And those companies earning three S&P STARS ("hold") comprise Best Buy,
FDX, Lucent Technologies (which will be acquiring Ascend Communications
via a massive stock deal), Northern Trust, U.S. Trust, Wachovia and Wal-Mart.
S&P briefly appraised a couple of its picks. America Online, it notes, is the
largest online service provider in the world, with more than 14 million
subscribers. As a consumer-oriented company, AOL's peak usage time has
been in the evening hours. "However, the pending acquisition of Netscape
Communications should help the company penetrate the daytime at-work
market via Netscape's Internet portal, Netcenter ... [which] is available without
charge to all Internet users." S&P expects AOL's fiscal 1999 (ending June)
profits, sans Netscape, to surge about 59% over the previous year's showing, to
56 cents a share, on a 45% jump in sales.
S&P said Compuware, "should benefit as one of the few companies offering
comprehensive, end-to-end products providing for the detection, evaluation,
repair and testing of Y2K glitches."
Tyco International is a conglomerate with operations in fire and safety services,
disposable medical products, electrical and electronic components, and pipes
and valves. S&P expects it to "extend its strong sales and per-share earnings
gains of the past few years... . Tyco also has in effect a very active and
successful acquisition program. It buys only companies that add to profits
immediately and strengthen a core business." Two recent acquisitions are
AMP, the world's leading maker of electrical and electronic connection devices,
and U.S. Surgical, which makes surgical staples, sutures and disposable
laparoscopic instruments. A 36% gain in profits for fiscal 1999, ending
September, is what S&P envisions.
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