According to Bank of America, several companies are prime candidates for a stock split in the near future, which could lead to shares doubling the average market return, if historical trends are any indication. Jared Woodard of Bank of America Securities noted that, in recent months, companies have been splitting their stock at a rate not seen in over a decade. He also pointed out that more stock splits could be on the horizon, as S&P 500 Index ($SPX) stocks with high share prices above $500 make up 14% of the benchmark index.
If you’re not familiar with stock splits, it’s important to know that they do not fundamentally change anything about a company. A stock split reduces the share price while increasing the total number of outstanding shares, without impacting shareholder equity. However, Woodard’s research indicates that stock splits often signal future outperformance. He referenced BofA research suggesting that shares could see returns of 20% to 25% over the next 12 months. Woodard noted that this exceeds the broader market’s average return of 12% over the same period.
With that, let’s take a look at some stocks BofA identified as potential split candidates - Netflix (NFLX), Meta Platforms (META), and Eli Lilly (LLY). The firm selected these based on the following criteria: a share price above $500 and a historical average return over one to five years that exceeds that of stocks that split during the same period.
BofA’s #1 Potential Split Candidate: Netflix
Valued at a market capitalization of $433.7 billion, Netflix (NFLX) is a leading provider of entertainment services. The company offers TV series, documentaries, feature films, and games across a wide range of genres and languages. It also allows members to stream content on various internet-connected devices, including TVs, digital video players, TV set-top boxes, and mobile devices.
Netflix’s primary strategy centers on global expansion through delivering engaging content and improving the user experience. It operates on a subscription model and offers various pricing plans, such as an ad-supported subscription, to meet diverse consumer preferences.
The streaming giant has made BofA’s list of candidates likely to split their stock soon. Shares of NFLX have surged 81.3% over the past 52 weeks, closing at $1,013.93 last Friday. This reinforces the firm’s argument that strong recent performance increases the likelihood of a stock split. Netflix has had no trouble demonstrating its fundamental strength, highlighting its most recent beat-and-raise report.
NFLX Pops After Beat-And-Raise Earnings
On Jan. 22, NFLX stock climbed over 9% after the company reported stronger-than-expected Q4 results and raised its 2025 revenue guidance. Its revenue grew 16.1% year-over-year to $10.25 billion, beating Wall Street’s consensus by $140 million. The growth occurred as Netflix reported ending 2024 with 302 million memberships, up 15.9% year-over-year. It recorded 18.9 million net additions of memberships during the quarter, the highest in its history. Its GAAP EPS came in at $4.27, beating expectations by $0.07.
It’s also important to note that Netflix’s ability to increase prices without a significant loss of subscribers indicates its strong pricing power. In the U.S., the monthly price of the ad-supported plan recently increased from $6.99 to $7.99. Also, the monthly cost of the standard and premium plans rose to $17.99 and $24.99, respectively. Still, the company has continued to see positive user metrics. Notably, these price hikes contribute to widening Netflix’s operating margin. In Q4, its operating margin improved to 22.2% from 16.9% in the same quarter a year earlier.
Let’s return once again to the company’s ad-supported plan. The first key point is that this plan enabled NFLX to offer lower price options to subscribers. As a result, the ad-supported plan accounted for approximately 55% of new sign-ups in their ads countries last quarter. Viewing hours of ad-supported subscriptions remain unexpectedly similar to those of the higher-priced ad-free plans. With that, this creates an additional revenue stream from advertisers keen to reach the company’s global audience, representing a multi-billion-dollar opportunity.
Netflix is a financially robust company. It generated an operating cash flow of $1.5 billion and a free cash flow of $1.4 billion in Q4. The streamer ended the quarter with over $9 billion in cash and equivalents, while its net debt stood at $8.5 billion. This robust cash flow and solid balance sheet enabled Netflix to repurchase 9.9 million shares in 2024 for $6.2 billion. Notably, during the earnings call, management said that the board boosted the share repurchase program by $15 billion, raising the total authorization to $17.1 billion.
Looking ahead, Netflix has revised its fiscal 2025 revenue forecast to between $43.5 billion and $44.5 billion, which is $500 million higher than its previous estimate.
The streaming company’s robust earnings report received a very positive response from Wall Street. Numerous brokerages and major investment banks upgraded NFLX stock or increased their price targets for it. For instance, Wolfe Research, Bernstein, and Rosenblatt are among those who upgraded NFLX stock following its earnings, while BofA, Morgan Stanley, JPMorgan, and Piper Sandler are among those who raised their price targets on the stock.
NFLX Valuation and Analysts’ Estimates
Analysts tracking the company project a 23.95% year-over-year increase in GAAP EPS to $24.58 for fiscal 2025, with revenue expected to grow 13.55% from the prior year to $44.28 billion.
In terms of valuation, it is clear that the stock is quite expensive at current levels. NFLX’s forward P/E ratio (Non-GAAP) stands at 40.78x, while its forward EV/EBITDA is 32.68x, both well above the sector median levels. However, if the company sustains a double-digit growth rate and continues improving its margins, I believe the premium would be justified.
What Do Analysts Expect for NFLX Stock?
Netflix stock has a consensus “Moderate Buy” rating, with a mean target price of $1,071.89, which indicates upside potential of 5.7% from the stock’s Friday close. Among the 42 analysts offering recommendations for the stock, 27 rate it as a “Strong Buy,” two advise a “Moderate Buy,” 12 suggest a “Hold,” and the remaining one gives a “Moderate Sell” rating.
BofA’s #2 Potential Split Candidate: Meta Platforms
With a market cap of $1.81 trillion, Meta Platforms (META), previously known as Facebook, is renowned for its social media platforms like Instagram, Threads, and WhatsApp. Recently, however, it has pivoted from its social media dominance to focus on becoming a frontrunner in the emerging fields of virtual reality (VR) and the metaverse.
Meta derives most of its revenue from advertising on its platforms, leveraging its extensive user base to provide targeted advertising opportunities. The company is also heavily focused on advancing AI technologies to improve user experiences and boost advertising efficiency.
As you might have guessed, Meta Platforms also landed on BofA’s list of potential stock split candidates. Shares of the Facebook parent have rallied 52.2% over the past 52 weeks, closing at $714.52 last Friday, aligning perfectly with BofA’s criteria for a potential stock split candidate. The company recently delivered a strong earnings report, surpassing expectations on both lines and reporting over 700 million monthly active users for its MetaAI chatbot.
META Reports Strong Q4 Earnings
On Jan. 29, Meta Platforms reported Q4 results that beat on top and bottom lines. The company’s top line advanced 20.6% year-over-year to $48.39 billion, beating the consensus by $1.4 billion. META posted GAAP EPS of $8.02, topping expectations by $1.26. This growth stemmed from strong performance in the Family of Apps segment, which delivered revenue of $47.3 billion, up 21% year-over-year. Management noted that over 3.3 billion people used at least one of the company’s Family of Apps daily in December, marking a 5% year-over-year increase, driven by the rise in video content consumption and Threads’ expansion toward 1 billion users. This underscores Meta’s strong position in global social media, with the growth in daily active users reflecting successful user acquisition, strong retention, and high engagement, all of which are likely to continue bolstering its long-term revenue growth. Ad revenue, which makes up the majority of Meta’s total revenue, grew by 21% year-over-year to $46.8 billion. Within ad revenue, the online commerce vertical contributed the most to year-over-year growth.
Meta effectively monetizes its user base, as evidenced by a 14% year-over-year increase in the average price per ad, driven by higher advertiser demand and better ad performance. Also, the total number of ad impressions served across its services rose by 6%, mainly driven by Asia-Pacific. This combination suggests that Meta’s ad ecosystem is well-balanced.
Meta’s second major segment, Reality Labs, contributes a negligible amount of revenue compared to its advertising business. The segment’s quarterly revenue stood at $1.1 billion, up just 1% year-over-year, driven by hardware sales. Unsurprisingly, Reality Labs is not yet profitable, but expectations for significant future revenue growth remain high.
Meanwhile, the social media company returned approximately $30 billion to shareholders through share repurchases and dividends in FY24. It announced a $50 billion stock buyback plan last year.
It’s also worth noting that Meta has made substantial progress in training its Llama 4 model. Management noted that Llama 4 Mini has completed its pre-training, while the reasoning model and larger model are currently performing well. The development of Llama aligns with Meta’s AI strategy. It has the potential to fundamentally transform the company’s revenue profile by unlocking substantial new revenue streams.
Finally, Meta continues to invest heavily in capital expenditures, projecting $60 billion to $65 billion for FY25, a significant increase from $37 billion in FY24. The substantial increase in capex highlights Meta’s strategic emphasis on AI infrastructure, models, and capabilities, which should bolster its long-term growth.
For Q1, Meta anticipates revenue between $39.5 billion and $41.8 billion, representing year-over-year growth of 8% to 15%.
META Valuation and Analysts’ Estimates
According to Wall Street estimates, META is expected to post 11.74% year-over-year GAAP EPS growth to $26.66 in FY25. Additionally, analysts project a 14.58% year-over-year increase in the company’s revenue to $188.48 billion.
In terms of valuation, Meta looks reasonably priced at current levels. META stock is trading at 28.31 times forward adjusted earnings, which is above the sector median of 14.89x and its five-year average of 23.36x. At the same time, this multiple is lower than that of some of its “Magnificent 7” peers, such as Microsoft (MSFT), Amazon (AMZN), and Nvidia (NVDA). I believe investors should focus on Meta’s AI investments, particularly in ad optimization, AI-driven platforms, and hardware. With that, if the company’s AI monetization scales faster than anticipated, it will likely support further multiple expansion, providing the stock with more room to run.
What Do Analysts Expect for META Stock?
Analysts have a consensus rating of “Strong Buy” on META stock. Out of the 53 analysts covering the stock, 45 recommend a “Strong Buy,” two advise a “Moderate Buy,” four give a “Hold” rating, and two consider it a “Strong Sell.” The mean price target for META stock is $736.60, which is just 3.1% above Friday’s closing price. However, the Street-high target price of $900 suggests an upside potential of 26%.
BofA’s #3 Potential Split Candidate: Eli Lilly
Eli Lilly (LLY) is a prominent global pharmaceutical firm recognized for its discovery, development, and marketing of human pharmaceuticals. The company’s product portfolio covers multiple therapeutic areas, including diabetes, oncology, immunology, and neuroscience. Its market cap currently stands at $790.9 billion.
LLY has benefited substantially from higher sales of its anti-diabetic medication, Mounjaro, and its recently launched obesity medication, Zepbound, both formulations of its GIP and GLP-1 receptor agonist, tirzepatide. Moreover, the company’s strategic partnerships and investments in advanced drug discovery, including its collaboration with OpenAI for AI-driven drug development, further strengthen its competitive position in the market.
Eli Lilly is another notable name on BofA’s list of potential stock split candidates. Shares of the drugmaker have gained 18% over the past 52 weeks, closing at $878.31 last Friday.
How Did Eli Lilly Perform in Q4?
On Jan. 14, Eli Lilly updated its Q4 revenue guidance, lowering it by $400 million from the previous forecast, which led to a more than 6% drop in the stock. On Feb. 6, LLY stock gained over 3% after the company announced its financial results for Q4 and detailed its 2025 financial guidance.
Eli Lilly’s revenue increased by 45% year-over-year to $13.53 billion, primarily driven by Mounjaro and Zepbound. Sales of the company’s blockbuster weight-loss drugs, Mounjaro and Zepbound, reached $3.53 billion and $1.91 billion, respectively. Notably, Zepbound has emerged as the market leader in the anti-obesity segment based on new prescriptions. Performance of its non-incretin portfolio was also solid, with revenue growing 20% year-over-year when excluding one-time payments related to business development. LLY’s top line surpassed expectations by $100 million.
In terms of profitability, the company’s non-GAAP gross margin as a percentage of revenue improved by 0.9 percentage points to 83.2% in Q4, primarily impacted by a favorable product mix. Its operating income more than doubled, rising to $5.6 billion, driven by higher revenue from new products. LLY’s adjusted EPS came in at $5.32, beating expectations by $0.24.
Meanwhile, regulatory approvals for Kisunla, Ebglyss, and Zepbound in 2024 were highlighted as key milestones, along with the acquisition of Morphic Therapeutics and the launch of new Phase 3 programs for promising drug candidates. “We enter 2025 with tremendous momentum and look forward to strong financial performance and several important Phase 3 readouts which, if positive, will further accelerate our long-term growth,” said David A. Ricks, Lilly's chair and CEO. Notably, the company’s highly anticipated oral GLP-1 drug, Orforglipron, is set to deliver data from up to five studies in 2025. This includes ACHIEVE-1, a 40-week phase 3 trial for type 2 diabetes, along with two additional obesity studies expected later in the year. This drug is eagerly awaited, and its launch is expected to be a major catalyst for LLY stock.
For FY25, Eli Lilly projects revenue between $58.0 billion and $61.0 billion, representing 32% year-over-year growth at the midpoint. Adjusted EPS is expected to range between $22.50 and $24.00.
LLY Valuation, Dividend, and Analysts’ Estimates
Analysts tracking the company predict a 78.66% year-over-year increase in its adjusted EPS to $23.21 for fiscal 2025. Also, Wall Street expects LLY’s revenue to grow 31.19% year-over-year to $59.09 billion.
Eli Lilly returned to shareholders over $1 billion through the dividend and about $2 billion via share repurchases in Q4. Moreover, the company announced a $15 billion share repurchase program at the end of last year, along with the seventh consecutive 15% increase in its quarterly dividend. Notably, it offers an annualized dividend of $6.00 per share, resulting in a forward yield of 0.69%.
In terms of valuation, LLY stock is trading at 37.84 times forward adjusted earnings, 93.99% above the sector median of 19.51x but slightly below its five-year average of 42.38x. Still, I believe the company’s valuation is justified, as its key growth metrics exceed the sector median by a substantially wider margin.
What Do Analysts Expect for LLY Stock?
Analysts have deemed LLY stock a “Strong Buy,” with an average target price of $984.29, indicating an upside potential of 12.1% from Friday’s closing price. Among the 24 analysts covering the stock, 19 recommend a “Strong Buy,” one advises a “Moderate Buy,” and the remaining four give a “Hold” rating.
