Stock Split Watch: Is Eli Lilly Next?

Eli Lilly (LLY +4.72%), as a pharmaceutical stock, may be seen as a source of safety for investors — patients need their medicines, and this provides a certain level of revenue stability regardless of the economic backdrop. But in recent times, this company has also become a growth player thanks to its leadership in a space generating high demand: the weight loss drug market.

Lilly, the seller of blockbuster GLP-1 drugs, has seen revenue take off, and that has prompted both cautious and more aggressive investors to pile into the stock. The company has seen its stock advance more than 300% over five years, and in recent months, it reached record levels, trading above $1,200.

Today, with a stock price of more than $1,160, could a stock split be next on the company’s agenda? Let’s find out.

What are stock splits?

So, first, let’s talk about stock splits. What are they, and why are they done? Companies generally launch stock splits after their shares have had a really good run — or while the stock is soaring. These operations involve offering current holders additional shares, and this mechanically brings down the price of each individual share.

The final price is determined by the ratio of the split, so, for example, in a 10-for-1 split, a stock that was originally $1,000 would be $100 post-split. And an investor who originally held one share valued at $1,000 would then hold 10 shares with the same total value.

The logic behind such an operation is simple: A stock split makes it easier for a broader range of investors to get in on the stock. Some investors don’t have access to fractional shares, which allow the purchase of part of a stock. In other cases, investors may not want to invest $1,000 in a company but are happy to invest a couple of hundred dollars. Finally, for some investors, the level of $1,000 represents a psychological barrier, and they see the stock as expensive even if valuation suggests otherwise. A stock split opens the investment opportunity up to all of these investors.

Now, let’s consider Eli Lilly. The company sells a wide variety of drugs across treatment areas, but its star products in recent years have been in the area of GLP-1. These drugs act on hormonal pathways involved in digestion and have safely helped many worldwide shed pounds. Demand is high, and this has translated into billions of dollars in revenue for the company’s Mounjaro and Zepbound.

Lilly competes with Novo Nordisk, the maker of Ozempic and Wegovy, in the space, but is the market leader with 60% share in the U.S.

Addressing a growing, billion-dollar market

All of this has generated a lot of excitement around Lilly stock, particularly considering that the GLP-1 story may continue to drive growth well into the future. The market is expected to reach nearly $100 billion by the end of the decade.

So, it’s not surprising that Lilly shares have advanced. Now, the question is: Will Lilly launch a stock split around today’s levels?

The company completed four stock splits in the past, which could show that it favors such moves. But the most recent one was nearly 30 years ago, so the company’s stock split history isn’t relevant to its strategy today.

Lilly stock has climbed in recent years, but early this year it declined, and if that had continued, I would have said a split wasn’t likely. Over the past six months, though, momentum has returned, with the stock advancing 25% over that period. This coincides with Lilly’s launch of a new weight loss drug, GLP-1 pill Foundayo, and could usher in a new period of gains.

Against this backdrop, it’s very possible that Lilly may be one of the next market giants to announce a stock split.

It’s important to keep in mind that splits don’t change anything fundamental about a stock, so they aren’t a reason to buy or sell. This means, unless the price tag is holding you back for the reasons I mentioned above, you don’t have to wait for such an operation to get in on this exciting pharmaceutical stock.