Netflix’s Stock Split Is Almost Here. Eli Lilly Could Be Next.

Eli Lilly is trading just over $1,000. Splits usually happen at somewhere over $500. (Scott Olson/Getty Images)

Key Points

• Netflix will execute a 10-for-1 stock split on Monday, reducing its share price to one-tenth of its current value.
• Eli Lilly is identified as a strong candidate for a stock split, with its share price exceeding $1,000 and strong growth from Zepbound.
• Historically, stock splits have led to an average gain of 12% for companies between announcement and execution, with Tesla seeing a 28% rise.

Stock splits bring in new investors in. Netflix, just days away from splitting, is the latest. We think Eli Lilly is next—and that could mean gains for the stock.

Monday is when Netflix officially splits 10 for 1, a move we predicted almost a year ago. So anyone holding a share of Netflix today will receive 10 shares after the split. It means the share price will be cut to a tenth of what it is before the split.

A split, to be clear, doesn’t change the value of the company, which is the market capitalization in the public equity market, or the dollar amount of equity that each shareholder owns. It simply reduces the share price to make the stock more affordable for individual investors—regular folks—many who don’t have the deep pockets of professional investors.

Splits often come in bull markets, when stock prices can gain and become pricey. They’re often the stocks of massive, well-known companies because the companies have expanded—and their stocks have surged on that growth.

Netflix is the latest, but there have been others in the past few years: Apple , Nvidia , Broadcom, Tesla , Chipotle, and Walmart. That’s only to name a few.

Today, Eli Lilly checks all the boxes—a stock ripe for a split: a giant pharmaceutical that is still growing, a stock that has surged.

The best part is that the numbers show splits generally produce strong results. They have historically produced gains, and most certainly in the past few years.

Jeffries trading analyst Jeffrey Favuzza looked at 11 splits. Eight of those stocks gained from the time of the announcement to the time of the split. Part of the picture is often increased demand for the shares from individual investors.

The average gain for all 11 stocks was 12%. The largest gain was Tesla’s 28% rise after it announced its split in August 2020.

Remember, though, that a split doesn’t guarantee gains. If a business performs poorly after a split, professional investors could sell and overwhelm any buying from individuals.

Lilly’s share price has been increasing for the past few years, driven by its blockbuster weight-loss drug, Zepbound. Sales keep growing.

Today, the stock trades at just over $1,000 a share. Often, splits occur at somewhere over $500 a share. The stock came up on Bank of America’s list of split contenders, last updated in January, because it was trading at over $500. To be clear, Lilly hasn’t signaled a stock split, but the share price screams otherwise.

If it does split, the stock could easily climb more because of demand for shares, which Favuzza’s statistics support. About 27% of Lilly’s shares are owned by individuals, according to FactSet—far less than over a third for Nvidia, Apple, Tesla, and Walmart. Not having so many individual investors could get the many folks who don’t own the company to buy in.

Let’s also not forget about Lilly’s record of producing stellar earnings results. It usually grows earnings rapidly—and by a larger amount versus analysts expectations.

Keep your eyes peeled for an announcement.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com