Retail giant Walmart (WMT) recently completed its first stock split in 25 years. That means after Friday's closing bell, investors in Walmart stock received 3 shares for every 1 they already owned. But what is a stock split? How does it work? And most importantly, why does a company decide to implement one?
What Is a Stock Split?
A stock split occurs when a company increases the number of its outstanding shares by issuing more shares to existing shareholders in proportion to their current holdings. This results in a decrease in the individual share price, while keeping the total market capitalization unchanged.
This is most often done by management to increase the liquidity of its shares and to make its shares more affordable for prospective investors, as well as reward existing investors. In other words, not only do existing Walmart investors now own 3 shares for every 1 they held previously, but prospective retail investors who were unable to buy in at the prior $175 per-share price range may now find the stock more accessible at below $60 per share.
However, in no way does it change the core fundamentals of the company - effectively making the stock split a cosmetic accounting change (although, in the case of Walmart, the company is so large it also opened the door to a historic index rebalancing, too). Nevertheless, since it generally opens up the company's shares to a wider pool of potential investors, stock splits are often well-received on Wall Street, and equities tend to respond positively.
Now that Walmart has entered its post-split era, here are three other top-rated stocks from the retail industry that might soon consider stock splits of their own, based on relatively high per-share prices.
1. Five Below Stock
Philadelphia-based Five Below (FIVE) is a discount retailer offering a wide variety of merchandise, primarily priced between $1 and $5. Founded in 2002, the company categorizes their offerings into eight "worlds": Style, Room, Sports, Tech, Create, Party, Candy, and New & Now. With about 1,572 stores in operation across the U.S., its market cap currently stands at $10.7 billion.
Five Below stock is down 8% on a YTD basis to underperform the broader S&P 500 Index ($SPX), which has gained 7.3% in 2024. FIVE currently trades around $195 per share, and the stock has never split - although the discount retailer underwent one reverse split at a 1:4 ratio back in 1998.
For the third quarter, Five Below reported that net sales increased by 14.2% from the previous year to $736.4 million, while EPS fell 10.3% to $0.26 over the same period. Both revenue and EPS for Q3 topped analysts' expectations, continuing a trend of surpassing bottom-line estimates for FIVE.
More recently, the company also announced that its net sales for the period from Oct. 29, 2023, to Jan. 6, 2024, rose by 15.6% year-over-year to $1.16 billion, including a 3.6% rise in same-store sales. FIVE also reiterated FY 2023 guidance for revenue of $3.54 billion to $3.57 billion, same-store sales growth of 2.5%, and EPS of $5.40-$5.56.
The retailer is due to report earnings again on March 20, with consensus forecasts calling for 23% bottom-line improvement. Looking ahead, analysts are targeting 16.4% EPS growth in the next quarter, and 18.1% overall in FY 2024.
Analysts have deemed Five Below stock a “Strong Buy,” with a mean target price of $219.29. This denotes an upside potential of about 11% from current levels. Out of 18 analysts covering the stock, 13 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 4 have a “Hold” rating.
2. Tractor Supply Company Stock
Founded in 1938 and based out of Brentwood, Tenn., the Tractor Supply Company (TSCO) is the largest operator of rural lifestyle retail stores in the U.S., offering a wide range of products for home improvement, agriculture, lawn and garden maintenance, livestock, equine, and pet care. Its market cap currently stands at an impressive $26.3 billion.
TSCO stock is outperforming in 2024, up 13.5% on a YTD basis to trade around $244 per share, but has lagged the S&P with a 52-week gain of less than 6%. The stock has split four times previously, all at a 2:1 ratio, with the last taking place in 2013.
Notably, TSCO currently yields 1.81%, with this dividend payment backed by over a decade of growth.
Tractor Supply's Q4 earnings results were mixed, as revenue fell narrowly short of consensus expectations, while EPS beat Wall Street's forecast. Net sales declined by 8.6% from the previous year to $3.66 billion, compared to the $3.68 billion consensus. The company cited a 4.2% decrease in comparable store sales as the primary contributor to the overall decline in net sales. EPS fell 6.2% in the same period to $2.28, edging past the average forecast of $2.22.
The retailer anticipates lighter revenue growth for the fiscal year ahead, too, with updated guidance calling for $14.9 billion in sales and EPS of $10.18 in fiscal 2024, at the midpoint. That's roughly in line with Wall Street's forecast, which calls for 0.69% EPS growth in fiscal 2024.
Overall, analysts think TSCO stock is a “Moderate Buy,” but the shares have outstripped their average price target of $235.27. Out of 28 analysts covering the stock, 13 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 12 have a “Hold" rating, 1 has a “Moderate Sell” rating, and 1 has a “Strong Sell” rating.
3. Ulta Beauty Stock
Founded in 1990 and based out of Bolingbrook, Ill., Ulta Beauty (ULTA) is the largest beauty retailer in the U.S., offering a wide range of cosmetics, fragrances, skincare, haircare products, and salon services. It focuses on providing a one-stop-shop experience for beauty needs, catering to various price points and preferences. Its market cap currently stands at $26.7 billion.
Ulta Beauty stock is up nearly 13% on a YTD basis to trade above $550 per share. Over the last year, however, the shares are just 6.5% higher.
Q3 net sales for Ulta were $2.49 billion, up 6.4% from the prior year. Although EPS fell by 5.1% from the year-ago period to $5.07, it still comfortably topped the consensus estimate of $4.96. Notably, the company's EPS has exceeded expectations in each of the past five quarters.
The retailer also raised the low end of its guidance for full-year revenue, EPS, and same-store sales. Fiscal year revenue is anticipated at $11.10-$11.15 billion, diluted EPS is expected to range between $25.20-$25.60, and same-store sales are projected to rise 5%-5.5%. ULTA will report its full-year results on March 14.
Overall, analysts are calling ULTA stock a “Moderate Buy,” but the shares are trading a few points north of Wall Street's $551.64 mean price target. Out of 25 analysts covering the stock, 17 have a “Strong Buy” rating, 7 have a “Hold” rating, and 1 has a “Strong Sell” rating.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
