This Specific Stock Dividing Its Shares Might Overpower the Market, Suggests Wall Street
Stock-split mania has infected countless investors in 2024, given the monumental number of stock splits that have taken place. Given the enormous quantity of stock splits, this isn't a shocker. Over 450 forward stock splits have occurred this year alone, including even backward stock splits. Moreover, additional stock splits are imminent in the forthcoming weeks.
Several companies that have carried out splits this year have emerged as triumphant winners. For instance, Microstrategy's shares have experienced an astounding surge of over 420%, while Nvidia has witnessed a soaring increase of around 190%.
However, one stock-split stock has been a total letdown this year. Yet, it could potentially reshape the market over the next 12 months, as per Wall Street forecasts.
Meet the possible market disruptor
Lam Research (symbol: LRCX, with a 2.06% drop) executed a 10-to-1 stock split after market hours on Oct. 2, 2024. In May, the semiconductor fabrication equipment provider announced its plans for the stock split coinciding with a $10 billion stock repurchase program. According to CFO Doug Bettinger, the stock split would "facilitate a larger participation of Lam's global employee base in the company's employee stock plans."
In the weeks following Lam's stock split announcement, its share price soared. Nevertheless, its stock began plummeting in July and is now approximately 36% below its peak.
Wall Street continues to remain optimistic about Lam Research, though. The average 12-month price target for the stock indicates an upside potential of 29%. This is much more optimistic than the projections for the S&P 500. Goldman Sachs is predicting the S&P 500 will rise around 9% over the next 12 months, while Evercore ISI believes the index will deliver a gain of approximately 12% by mid-2025. On the contrary, Stifel analysts anticipate a significant S&P 500 sell-off.
Out of the 32 analysts surveyed by LSEG in November, 16 rated Lam Research as a "buy," with four viewing it as a "strong buy." The other 12 analysts recommend holding the stock. Not a single analyst surveyed by LSEG advised selling Lam, despite the most pessimistic price target for Lam being higher than its current share price.
Why analysts favor Lam Research
It's unnecessary to engage in discussions with the 20 analysts who rated Lam as a "buy" or "strong buy" to grasp their enthusiasm for the stock. The main reason for their optimism boils down to the company's growth prospects.
Spending on NAND flash memory is currently in a slump. Nonetheless, Wall Street seems to expect a recovery. Lam, indeed, does. CEO Timothy Archer claimed in the company's third-quarter earnings call that technology updates should boost investments in NAND. He predicted that more customers will transition to advanced nodes in 2025. Archer added, "Given the industry's largest installed base of 3D nanometer-equipped machinery, Lam should gain disproportionate advantages as these upgrades take place."
Lam may expand its market share in advanced extreme ultraviolet lithography (EUV) patterning next year as well. This EUV patterning is used to print layers on silicon wafers to manufacture semiconductor chips. Lam has also emerged as a frontrunner in advanced packaging, which incorporates multiple chips to enhance performance and decrease costs.
It's likely that analysts are mainly bullish on Lam Research's valuation as well. Lam's stock's price-to-earnings-to-growth (PEG) ratio based on five-year earnings growth projections is 1.44. While this isn't a bargain valuation, it's lower than the 1.72 PEG multiple for Lam's top competitor, Applied Materials (AMAT 0.04%).
Is Wall Street correct about this stock-split stock?
Perhaps Lam Research will achieve Wall Street's consensus price target over the next 12 months; perhaps it won't. However, I believe analysts have valid reasons to be optimistic regarding this stock's long-term potential.
Indeed, Lam confronts certain risks. China, which accounted for 37% of the company's total revenue in Q3, can be an unstable market. The possibility of high tariffs on imports to the U.S. could negatively impact Lam financially.
Nevertheless, I expect the demand for NAND flash memory to bounce back precisely as it has in the past. Lam is well-prepared to leverage this recovery, regardless of whether the stock increases 29% over the next 12 months or not; it will be a substantial winner in the long run.
After considering Lam Research's robust growth prospects and its favorable valuation compared to its competitors, many analysts have expressed optimism about the stock's long-term potential, despite its recent dip following a stock split. In managing financial risk, the company has even announced a $10 billion stock repurchase program as part of its split strategy.
Given this optimistic outlook and the potential for NAND flash memory market recovery, investors might want to consider incorporating Lam Research into their investment portfolios, given the opportunity for substantial returns over time.
