The stock split fever has infected many investors in 2024. That may not be surprising, given the sheer scale of stock splits. There have been more than 450 forward stock splits to date, including reverse stock splits. More stock splits are planned in the coming weeks.
Several stocks of companies that have already completed a split this year have been big winners. For example, Microstrategy‘s shares have skyrocketed more than 420% Nvidia with an increase of approximately 190%.
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One stock split was a disappointment this year. However, according to Wall Street, this could crush the market over the next twelve months.
Lam Research (NASDAQ:LRCX) executed a 10-for-1 stock split after the market close on Oct. 2, 2024. In May, the semiconductor equipment supplier announced plans for the stock split, along with a $10 billion stock buyback. CFO Doug Bettinger said the stock split would “enable a greater portion of Lam’s global employee base to participate in the company’s employee stock ownership plans.”
In the weeks following Lam’s announcement of the planned stock split, the share price rose. However, the stock started to plummet in July and is now about 36% below its peak.
However, Wall Street remains bullish on Lam Research. The average 12-month price target for the stock reflects an upside potential of 29%. That’s much more bullish than the forecasts for the S&P500. Goldman Sachs thinks the S&P will rise about 9% over the next twelve months. Evercore ISI expects the index to return about 12% by mid-2025. On the other hand, Stifel Analysts predict a steep sell-off in the S&P 500.
Of the 32 analysts surveyed by LSEG in November, 16 rated Lam Research a ‘buy’, while four considered the stock a ‘strong buy’. The other twelve analysts recommend holding the stock. None of the analysts surveyed by LSEG saw Lam as a stock to sell. Even the most pessimistic price target for Lam was higher than the current share price.
We don’t need to talk to the twenty analysts who rated Lam a ‘buy’ or ‘strong buy’ to get a good idea of why they like the stock. It comes down to the company’s growth prospects.
Spending on NAND flash memory remains in a slump. However, I think Wall Street expects a recovery. Lam certainly does that. CEO Timothy Archer said in the company’s third-quarter earnings call that technology updates should boost investment in NAND. He predicted that more customers will switch to advanced nodes by 2025. Archer added: “With the largest installed base of 3D manned equipment in the industry, Lam should benefit disproportionately from these upgrades.”
Lam could also increase its market share in advanced extreme ultraviolet lithography (EUV) cartridges next year. These EUV patterns are used to print layers on silicon wafers to make semiconductor chips. Lam has also become a leader in advanced packaging, which combines multiple chips to improve performance and reduce costs.
I’d wager that analysts are generally bullish on Lam Research’s valuation as well. The stock’s price-to-earnings-growth ratio (PEG), based on five-year earnings growth forecasts, is 1.44. While that’s not a bargain valuation, it’s lower than the PEG multiple of 1.72 for Lam’s closest rival. Applied materials (NASDAQ: AMAT).
Perhaps Lam Research will hit Wall Street’s consensus price target over the next twelve months; maybe not. However, I think analysts are right to be optimistic about this stock’s long-term potential.
Granted, Lam faces some risks. China, which accounted for 37% of the company’s total revenue in the third quarter, could be a volatile market. The possibility of high tariffs on imports to the US could hurt Lam financially.
Still, I expect demand for NAND flash memory to return as it has in the past. Lam is well-placed to benefit if and when this happens. Whether or not the stock rises 29% over the next twelve months, it should be a solid winner in the long term.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Applied Materials, Goldman Sachs Group, Lam Research and Nvidia. The Motley Fool has a disclosure policy.
This Stock Split Could Crush the Market, According to Wall Street, and was originally published by The Motley Fool
