Which upcoming stock split is worth buying? Analysts have a clear favorite

High stock prices can be both a sign of strength and a potential barrier. On the one hand, they indicate that a company is doing well enough to attract investors. On the other hand, stock prices that reach several hundred dollars can scare off potential buyers and slow the inflow of fresh capital.

To solve this problem, companies often resort to a stock split. This strategy lowers the price per share while increasing the total number of shares without affecting the company's overall market capitalization. In a stock split, shareholders receive more shares in proportion to their existing shareholding. This adjustment makes the stock more accessible to new investors.

Historically, stock splits have always been well received by investors, and the data backs up that sentiment. Looking at 40-year data for the first 12 months after a stock split, the average post-split return is 25.4%, double the average return of the broader S&P index for those months.

But not all splits are created equal, and some stocks will benefit more than others. We used the TipRanks database to find two upcoming stock splits that are receiving very different ratings from Wall Street analysts. Let's take a closer look at these splits and find out which one the analysts are leaning toward.

Cintas Corporation (CTAS)

We'll start with Cintas, a name many of you may know, even if you may not know where from. This company has a large presence and its logo can be found in many places, but its line of business is one that most of us don't think about: uniforms. Cintas is a provider of support service equipment to the corporate sector, including uniforms, but also a full range of cleaning products for restrooms, general janitorial services and kitchens; industrial cleaners; first aid and safety equipment; fire protection services and equipment, including fire-resistant clothing; and training and compliance materials and courses. In short, Cintas offers everything a company needs to stay well-dressed, clean and compliant with occupational health and safety standards.

This is a big business, and in the last fiscal year, which ended May 31 of this year, the company generated total revenues of $9.6 billion. The company operates in the United States and Canada and has more than 1 million enterprise customers. Cintas has 12 distribution centers and operates more than 11,700 distribution routes. The company is based in Ohio, has been in business for more than 90 years, and is one of the largest companies in its industry.

In July of this year, Cintas reported strong earnings and gave better guidance – and the stock soared as a result. Shares quickly hit record highs and continued to rise through the end of August. Even after some losses in recent sessions, shares are still near their record highs.

The earnings that drove shares so high were released on July 18. The company had revenue of $2.47 billion, up more than 8% year over year and in line with forecasts. The bottom line, earnings per share of $3.99, rose 66 cents per share and beat estimates by 19 cents. Looking ahead, the company gave fiscal 2025 revenue guidance in the range of $10.16 billion to $10.31 billion, a midpoint increase of 6.6% year over year. Earnings per share for fiscal 2025 are forecast in the range of $16.25 to $16.75.

In addition to the optimistic earnings outlook, Cintas also recently increased its dividend by more than 15%. Although the dividend yield is low at less than 1%, the current payment of $1.56 per common share is $6.24 on an annualized basis. The higher dividend was paid on September 3.

The biggest news for Cintas investors, however, is the upcoming stock split. The company announced this move back in May. On September 11 of this year, shareholders who were registered on the share register as of September 4 will benefit from a 4:1 stock split. That is, each shareholder will receive 3 new shares in addition to their existing holdings. Based on current share price levels, the split will reduce the stock value to just under $200 per share.

However, Baird analyst Andrew Wittmann does not see much upside potential here. He believes the stock is overvalued despite the impending stock split.

“At current valuations, we see limited upside potential… We want to be clear that we have no fundamental concerns about CTAS' model/value proposition, execution quality, or the myriad benefits that come with its scale advantage. While the labor market is showing some signs of slowing and peers have indicated some level of increased competition, even these are not too concerning to us… Overall, we hope to get another chance to recommend CTAS, but for now, we believe the shares are discounting most of the good news,” Wittmann said.

Wittmann rates CTAS stock Neutral with a $775 price target, suggesting the stock will remain range-bound for now. (To watch Wittmann's track record, click here)

As for Wall Street's overall stance on Cintas, the consensus for the stock is Moderate Buy based on 16 analyst ratings: 7 Buys, 7 Holds, and 2 Sells. However, with a current trading price of $802 and an average price target of $769, analysts are forecasting a potential 4% downside from current levels. (See CTAS Stock Forecast)

Lam Research (LRCX)

For the next stock on our list, we turn our attention to the semiconductor chip industry. Lam Research is a provider of the sophisticated manufacturing equipment used in the manufacture of silicon microchips. Lam specializes in the high-tech equipment used to produce and prepare silicon wafers, the basic raw material of the semiconductor chip. Lam's products cover a wide range of chip manufacturing processes, and the company is known as an innovative provider of services and equipment in the industry. Lam operates globally and is headquartered in Fremont, California, near the heart of Silicon Valley.

Shares of Lam Research peaked at over $1,120 in the first half of July this year and have fallen nearly 35 percent since then. Headwinds for the stock include a sluggish market for memory chips and rising tensions between the U.S. and China as the two powers spar over imports and exports in the technology sector.

On the company's financial side, both revenue and profit have posted modest gains in recent quarters. In the last report, covering the “June quarter” of 2024, the company reported revenue of $3.87 billion, up more than 20% year over year and beating forecast by a modest $40 million. The bottom line, reported as non-GAAP earnings per share, was $8.14 per share, 55 cents more than expected.

Vivek Arya, a 5-star analyst at Bank of America who ranks in the top 1% of Wall Street experts, believes the stock is on the verge of a recovery. Arya sees a recovery in the memory chip market as a key advantage for Lam's prospects.

“Optimism for a NAND recovery is growing, supported by an upwardly revised forecast for modest year-over-year CSBG growth, driven in part by higher utilization rates. Importantly, LRCX is revenue agnostic to a technology transition-driven upgrade cycle versus greenfield expansions. Leading edge foundry/logic should benefit from both GAA and HBM/Advanced Packaging (each over $1B in revenue this year), both of which are trending upward toward C2H/C2Y5E due to outsized demand compared to the year-ago quarter. Lt, LRCX can maintain its leadership position in Dep/Etch with new conductor etch tools for 4F square DRAM and cryo-etch for NAND,” Arya said.

Arya recommends LRCX shares with a price target of $1,200, suggesting a one-year upside potential of over 63%. (To watch Arya's track record, click here.)

The general Street opinion on LRCX is a Moderate Buy based on 20 reviews, including 13 Buy and 7 Hold. Shares are trading for $729.10 and the average price target of $1,100.25 suggests a gain of ~51% over the one-year horizon. (See LRCX Stock Forecast)

A look at the available data clearly shows that Wall Street analysts consider LRCX stock to be the better stock before the split.

To discover promising stock ideas that are about to split, check out TipRanks' upcoming stock splits calendar, a comprehensive resource for staying ahead of potential opportunities.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important that you conduct your own analysis before investing.