The Stock of Uber Has Been Deemed Too Hard to Ignore, and It May Soon Be Included in the S&p 500

An analyst suggests that Uber Technologies Inc. is on track for potential inclusion in the S&P 500, which makes its stock highly noteworthy. While the ride-hailing company faced challenges in its early days as a publicly traded firm, it has recently shown significant improvement, making sustained profitability on a GAAP basis a realistic possibility. Uber meets nearly all the requirements for S&P 500 eligibility, and the final criterion necessitates positive GAAP earnings in both the trailing-12-month period and the most recent quarter.

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According to Bernstein's Nikhil Devnani, Uber could achieve this goal by the second quarter of 2024, leading to a plausible inclusion in the S&P 500 by the second half of 2024. Historically, stocks with potential for S&P 500 inclusion tend to perform strongly in the 6-12 months leading up to their inclusion in the index.

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Bernstein's analysis of the largest new entrants to the index from 2010 to 2023 revealed that they outperformed by 68% in the year before their inclusion announcement and by 33% in the six months preceding the announcement. However, there was no substantial increase in their performance in the months following inclusion.

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Although meeting eligibility criteria is not a guarantee of inclusion, Uber has several favorable factors working in its favor. Its large market capitalization, currently over $95 billion, makes it an attractive candidate. Additionally, its classification as an industrials company rather than an information-technology company could positively influence the index committee's assessment, considering sector balance in their determinations.

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However, there is a potential negative aspect to watch: Uber's equity stakes amounting to about $5 billion can impact net income due to regular mark-to-market valuations. Devnani believes that freeing up these stakes could enhance earnings per share predictability and generate capital for buybacks.

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Despite these considerations, Devnani maintains an outperform rating and a target price of $50 on Uber shares, while outlining a potential path to $60 in the future.

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