3:45pm (EST)
The market has traded in a tight range today with neither the bulls nor bears making any major moves. Volume is light and there hasn’t been any major headline news. Financial stocks have held steady but have traded on the south side for much of the day.
On that note, it was interesting to see Citigroup (C, $4.42, down $0.01) doing a 1-for-10 reverse stock split. The company also plans to reinstate a quarterly dividend of a whopping penny on its common shares in the second quarter one the split is complete.
When a company does a reverse split, they normally don’t turn out to well, meaning, the fundamentals haven’t changed. If the fundamentals or outlook hasn’t changed, then what makes the stock attractive?
Citigroup’s case is a little different than most companies that do reverses. Usually companies face “delisting” from an exchange if their stock falls below $1 (see AIG which did a 1-for-20 a few years ago) and their last course of action is usually a reverse. Citigroup is now profitable again and most companies facing delisting aren’t.
The reverse stock split will be effective after the close of trading on Friday, May 6, and will trade on a split adjusted basis on Monday, May 9. Shares have been in a range of $3.50-$5 for over a year so we like the move by Citigroup.
One stock we are watching after the bell is Adobe Systems (ADBE, $33.00, up $0.66) which could be ready to break out of a range. The company reports after the bell and there is a chance they could miss estimates although most analysts are counting on Adobe to at least meet or beat estimates.
We will be back in the morning with the Adobe earnings story.
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