Twitter Inc (NYSE: TWTR) stock was more than 4 percent higher on Tuesday after the Dow Jones Indices announced the social media company will replace Monsanto Co. (MON) in the popular S&P 500 index. The news seems to have served as a near-term catalyst for the stock, but analysts see long-term opportunity for Twitter’s business as well.
Many investors and funds aim to mirror the performance of the S&P 500 index, so inclusion in the index could create some near-term buying demand for TWTR stock. As the name suggests, the S&P 500 is an index of 500 U.S.-listed large-cap stocks. The S&P 500, along with the Dow Jones industrial average, is often used as a measure of the overall U.S. stock market.
[See: 7 of the Best Tech Stocks to Buy for 2018.]
Twitter will replace Monsanto in the S&P 500 prior to the market open on June 7. Monsanto is in the process of merging with Bayer, which is retiring the Monsanto name. Dow Jones also announced Netflix ( NFLX) will be taking Monsanto’s place in the S&P 100 index.
The S&P 500 index’s value is calculated based on a formula that is weighted by market capitalization. A market cap of around $28.5 billion will place Twitter at roughly 200 in terms of influence on the index’s value.
Inclusion in the S&P 500 doesn’t change anything about Twitter’s business or necessarily represent an endorsement of the company by the Dow Jones Indices. However, CFRA analyst Scott Kessler says Twitter has shown notable improvement in its fundamental metrics so far in 2018, a trend which could continue in the future.
“We think TWTR has opportunities to grow its user base, increase engagement and better monetize its offerings, especially in light of some changes and challenges at Facebook,” Kessler says.
CFRA is expecting Twitter’s earnings before interest, taxes, depreciation and amortization margins to expand from 35 percent in 2017 to 40 percent by 2020.
“We note a global brand and large platform, a history of success related to mobile and a unique namesake offering combining broadcast capabilities and real-time communications,” Kessler says.
[See: 9 Tech ETFs for Growth Investors.]
Still, with TWTR stock up 115 percent in the past year, Kessler says much of the optimism is already priced into the stock.
CFRA has a “hold” rating and $29 price target for TWTR stock.
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Twitter Inc (TWTR) Stock Has a Rosy Outlook As It Joins the S&P 500 originally appeared on usnews.com
