A couple thoughts on the split and its timing.
I do not think the company would take this action now unless they were extremely confident in the company?s prospects, and also received a very positive response from institutional investors on the road show.
Aside from the obvious liquidity and trading volume issues this addresses, also look at how a split affects the targets of the analysts. When FBR does a little exercise and compares LDP with other similar companies, using like multiples, they get the $634.00 mentioned in their latest report. Similarly, when Bear Stearns uses price to book multiples for comparison, and if they just used an 8x book value (why not in fact use for it was the lowest multiple of any of the like companies they referred to) they would get an approx. $400.00 target.
These kind of price targets are so distant from where LDP is currently trading, that an analyst will not now make such a projection for fear of possibly affecting their own credibility as perceived by the reader/audience. Also, I assume for other reasons, an analyst is not likely to do such a thing anyway.
But the truth is, if you just look at the company fundamentals, what they do and have done, and their future prospects, such targets if they were indeed stated are not so unreasonable as you might first think. The 4:1 split reduces the sheer number of such a target, and makes it easier for the analyst (without appearing so outlandish) to come out with say a $100 target post split or a $125 post split. This we may actually see. |
