Post-Split History Sides with Kroger Co and Netflix, Inc. Bulls

Kroger Co (NYSE:KR) and Netflix, Inc. (NASDAQ:NFLX) will split their stock next week, and bulls are hoping they follow in the post-split footsteps of Gilead Sciences, Inc. (NASDAQ:GILD) and Ross Stores, Inc. (NASDAQ:ROST)

Jul 10, 2015 at 2:07 PM
facebook twitter linkedin

Both Kroger Co (NYSE:KR) and Netflix, Inc. (NASDAQ:NFLX) are scheduled for a stock split next week -- with the former's shares splitting 2-for-1 Monday evening, and the latter's splitting 7-for-1 after Tuesday's close. While each security is already boasting a strong year-to-date lead, and lingering in record-high territory, what are the chances they will sustain this momentum in the months subsequent to splitting?

Schaeffer's Senior Quantitative Analyst Rocky White pulled the numbers for all the stocks currently on the S&P 500 Index (SPX) that have split since 2009. The data is encouraging for KR and NFLX bulls, considering the 48 equities have averaged a six-month post-split return of 11.9%, versus 6.3% for the SPX. What's more, 63% outperformed the S&P 500 returns for the corresponding time frames. Drilling down on specific names, drugmaker Gilead Sciences, Inc. (NASDAQ:GILD) and discount retailer Ross Stores, Inc. (NASDAQ:ROST) each put up monstrous returns in the six months following their respective stock splits.

GILD, for example, split its stock 2-for-1 in January 2013. In the subsequent six-month time frame, the equity surged 57.3%, versus a 12.3% return for the SPX. More recently, the security has tacked on nearly 21% in 2015, and is fresh off its July 24 record high of $123.37 to trade at $113.82.

While analysts have been quick to take note of this upward momentum -- including Morgan Stanley, which raised its price target on Gilead Sciences, Inc. to $119 from $109 earlier -- option traders have taken the skeptical route. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GILD's 10-day put/call volume ratio of 0.54 ranks in the 76th annual percentile. An unwinding of these bearish bets could add fuel to the stock's fire.

ROST -- which did a 2-for-1 stock split on June 11 -- previously split its stock in December 2011. In the six months following this particular split, the security went on to jump 44.5%, compared to 11.3% for the SPX. The stock has sustained this momentum over the past 12 months, boasting a year-over-year lead of 55%. Additionally, after topping out at a record high of $54.46 in late March, ROST pulled back to its 160-day moving average and bounced.

The brokerage bunch has failed to buy into Ross Stores, Inc.'s technical tenacity, though. More than 63% of those covering the shares maintain a lukewarm "hold" recommendation, while the average 12-month price target of $54.13 is within a chip-shot of ROST's current perch at $50.84. Going forward, a round of upgrades and/or price-target hikes could help propel the security to new heights.

Minimize Risk While Maximizing Profits

There is no options strategy like this one, which consistently minimizes risk while maintaining maximum profits. Perfect for traders looking for ways to control risk, reduce losses, and increase the likelihood of success when trading calls and puts. The Schaeffer’s team has over 41 years of options trading success targeting +100% gains on every trade. Rest assured your losses are effectively limited to your initial cost at the time of making your move! Don't waste another second... join us right now before the next trade is released! 



Special Offers from Schaeffer's Trading Partners