Stock splits have been creating a lot of excitement in the market recently, with major companies across industries announcing them, from retail giant Walmart to artificial intelligence (AI) chip giant Nvidia to popular fast-casual chain Chipotle Mexican Grill Inc. All three companies completed their splits in the first half of the year after years of strong stock price performance.
And the move may not be over yet. Many other companies have also seen their share prices rise over time to levels that make it difficult for some investors to invest in them. The idea of a stock split is to issue more shares to current investors, lowering the price of each individual share. This doesn’t change the fundamentals of the company, so its market value and valuation remain the same. It simply means that a wider range of investors can buy the stock without having to resort to fractional shares.
Why are investors on the lookout for the next stock split? A stock split, in and of itself, is not a reason to buy a stock, and it doesn’t cause a stock price to rise or fall. But as we’ve said, stock splits give investors easier access to once-high-flying stocks. They also allow investors to invest in companies that have performed well in the past and have the strength to continue to do so in the future. So which stocks will split next? These two healthcare stocks have soared in recent years thanks to solid earnings growth, and at current levels they look poised for a split.
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1. Eli Lilly
Eli Lilly (NYSE: LLY) shares have risen 300% over the past three years and are currently trading at over $900, near all-time highs. This is due to a revenue pattern more typical of a growth company than a more slowly growing and stable pharmaceutical company. Lilly’s broad product portfolio has contributed to revenue growth for many years, but two products in particular have been driving revenue growth in recent times.
I’m talking about two Lilly drugs that doctors regularly prescribe for weight loss: Munjaro and Zepbound. Both consist of tirzepatide, which interacts with hormones involved in controlling blood sugar and appetite. Munjaro, approved in 2022, brought in more than $5.1 billion in revenue last year, while the recently approved Zepbound generated more than $517 million in revenue in its first quarter on the market.
Lilly now faces competition from Novo Nordisk and is likely to see competition from other companies in the future, but high demand for these types of weight-loss drugs means all the companies can expect to see ample revenue growth. Both Lilly and Novo Nordisk say demand is outstripping supply of their products.
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While this is great news and Lilly’s earnings growth is still looming, some investors may be hesitant to buy as the company’s stock price is approaching $1,000. Therefore, today seems like a good time to do a stock split, as the stock price could rise further and continue to grow in the future. Lilly has split its stock four times in the past, showing that the company is open to this type of business.
2. Vertex Pharmaceuticals
Vertex Pharmaceuticals (NASDAQ: VRTX) shares have risen about 145% over the past three years as the company’s cystic fibrosis (CF) drug became a blockbuster hit and the biotech demonstrated its ability to successfully expand into other therapeutic areas.
Vertex is the world’s leading CF treatment company, and with its strong intellectual property, it expects this dominance to continue into the 2030s. Last year, these products helped Vertex report annual revenues of more than $9.8 billion.
As for expanding into new areas, late last year Vertex received approval for its blood disorder drug Casgevy, and this year it began a rolling application for its potential non-opioid painkiller suzetrigine. The painkiller space could be a big opportunity for Vertex, as treatment options currently are limited to over-the-counter medications that are often ineffective, or opioid drugs that are known to be addictive.
In addition to this, Vertex may be poised to secure a long-term advantage in CF with a drug candidate it recently submitted to regulators for review called “Banza Triple.” Banza Triple beat Vertex’s best-selling treatment Trikafta in clinical trials and may also win on the convenience front due to its once-daily format.
All of this could pay off handsomely for Vertex over the coming months and years, but as with Eli Lilly, today’s price move could drag down the company’s stock price. Vertex is trading at over $480 a share, which is an all-time high. Of course, this is nowhere near Lilly’s levels and remains lower than fellow biotech Regeneron Pharmaceuticals, but Vertex is trading at a higher level than other large biotechs, such as Biogen or Amgen, for example.
This could lead to Vertex splitting its stock for the second time in the company’s history, lowering its share price and ushering in a new era of profits.
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Adria Cimino has invested in Vertex Pharmaceuticals. The Motley Fool has invested in and recommends Chipotle Mexican Grill, Nvidia, Vertex Pharmaceuticals, and Walmart. The Motley Fool recommends Amgen, Biogen, and Novo Nordisk. The Motley Fool has a disclosure policy.
Stock Split Watch: 2 Health Care Stocks That May Be Poised for a Split was originally published by The Motley Fool.
