Walmart just split its stock. History shows what will happen next with the megacap

Published Wed, Jan 31 202411:40 AM ESTUpdated Wed, Jan 31 202411:51 AM EST

Jesse Pound @/in/jesse-pound @jesserpound

Walmart 's plan to split its stock into three pieces should do nothing for the underlying strength of the retail giant's business, but history suggests the move might make shareholders richer anyway. The company announced on Tuesday afternoon that it will do a three-way stock split in February, in part to make it easier for its workers to buy full shares through its associate stock purchase plan. The split is not tied to any broader financial initiative, so it shouldn't change the company's total revenue or earnings, besides changing the "per share" calculations. But stock splits have a way of signaling that the company's shares are about to have a solid run, regardless of the fundamental logic. "Stocks have historically outperformed the market immediately following the split announcement, as well as 6-months following the split effective date. Outperformance has moderated over the last decade but is still positive," Morgan Stanley strategist Boris Lerner said in a 2021 note. According to that Morgan Stanley research, the shares of a company that announced a stock split outperformed the S & P 500 by an average of 2.4% between the announcement and effective date, with a 68% hit rate. In the six months after the effective date, the newly split shares outperformed the index by 4.7%. Those results are based on data from 2000 to 2021. The outperformance tended to be stronger for names that were already beating the market — suggesting that a split certainly doesn't hurt a stock's momentum — and higher-priced stocks. Walmart stock closed at $165.59 per share on Tuesday, less than $5 from its all-time high. WMT 5Y mountain Walmart is trading near its all-time high One reason the effect has waned over time could be the rise of easy retail trading. It is now simple for everyday investors to buy individual shares, or even fractions of shares, from brokerage apps on their phones. "That makes stock splits less relevant, although, even with the ability to trade odd lots at low cost, it can still be difficult for average retail investors to trade shares of stocks priced in thousands of dollars," Lerner said. For Walmart specifically, Oppenheimer analyst Rupesh Parikh said in a note to clients on Wednesday that the stock split is just a reassurance that the company is on the right track. "We view the announcement as another positive signal of WMT management's confidence in the company's longer-term prospects, even as the backdrop could turn deflationary for periods of time in 2024," Parikh said. Walmart is a top pick for Oppenheimer. So far, so good. Shares of Walmart were up 0.3% Wednesday even as the S & P 500 fell 0.8%. — CNBC's Michael Bloom contributed reporting.