Benzinga - by Shanthi Rexaline, Benzinga Editor.
Ride-hailing company Uber Technologies, Inc. (NYSE:UBER) has seen its stock more than double this year and a fund manager suggests the company can rightfully claim its place in the S&P 500 Index.
What Happened: Uber has an “excellent chance” of being added to the S&P 500 Index is the next few months, said Future Fund Managing Partner Gary Black. Giving his rationale, the fund manager said, Uber has the largest market cap of any company, not currently in the S&P 500 Index.
At the close of trading on Monday, Uber boasted a market cap of $107.503 billion. The stock closed the session up 1.28% at $52.24, according to Benzinga Pro data.
Uber has a track record of posting four cumulative quarters of positive GAAP earnings, including the most recent quarter, Black said. Given Uber is not part of the S&P 400 Midcap index, if it is added to the S&P 500, it would be purely incremental, which may not involve selling by S&P 400 indexers, he said,
The fund manager said S&P 500 index funds would need to buy roughly $22 billion of Uber shares. The most recent company, which was not part of the S&P 400 Midcap index but named to the S&P 500 Index, was Lululemon Athletica, the analyst said. The very next session following the announcement, the stock surged 10.3%, he added.
Black noted that S&P adds new names to the S&P 500 to replace companies that get acquired by other companies, or when the market cap of an index component drops below the minimum market cap, which is currently at $14.6 billion. The smallest S&P 500 market cap is now that of SolarEdge Technologies, Inc. (NASDAQ:SEDG), which currently has a market cap of $4.0B following its 75% year-to-date plunge, he said.
Why It’s Important: Following Uber’s third-quarter earnings reported in early November, Morgan Stanley analyst Brian Nowak said, “Uber’s businesses continue to surprise to the upside and accelerate as core and emerging products reinforce the durability of UBER’s growth algo.”
This combined with improving unit economics and disciplined growth will lead to strong multi-year free cash flow growth, he added.
Morgan Stanley has an Overweight rating and a $62 price target for the Uber stock.
The average analysts’ price target for the stock is $61.34, suggesting roughly 17.4% upside potential from current levels.
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