Facebook Inc. (FB:US), the operator of the world’s largest social network, is not the top candidate for inclusion in the Standard & Poor’s 500 Index when the gauge’s membership is next updated, Credit Suisse Group AG said.
Facebook has reported losses in two quarters since it began trading a year ago and the benchmark U.S. equity index is overweight technology companies, making it less likely S&P will add the Menlo Park, California-based company to the measure, according to Stephen Casciano, a New York-based analyst at Credit Suisse.
“A great deal of attention turned toward prospective index inclusions for” Facebook, Casciano wrote in a note dated yesterday. “We hold the view that it’s not a top candidate due to its sector and spotty earnings performance.”
Companies added to the S&P 500 usually have reported four straight quarters of profit, according to S&P Dow Jones Indices’ methodology. The firm also considers market capitalization and the balance of sectors, among other factors.
Facebook reported losses in the second and third quarters last year (FB:US), and technology stocks represent 18 percent of the index, the most out of 10 groups. Facebook’s $58 billion market capitalization exceeds that of several Internet companies in the S&P 500, including Yahoo! Inc. and Priceline.com Inc.
Real estate, software and capital goods companies are the most underweight in the index out of 24 groups, Credit Suisse data show. Casciano says the top candidates to be the next addition include General Growth Properties Inc. and Delta Air Lines Inc.
A stock’s inclusion in the S&P 500 (SPX) may prompt money managers to shift holdings to match the index. About $5.58 trillion is benchmarked to the gauge, according to S&P’s website.
Facebook shares gained 4.5 percent yesterday after an analyst (FB:US) at Stifel Nicolaus & Co. speculated the company would be selected for the index. Its shares fell 1.2 percent today to $24.03 and have lost 37 percent since the IPO. The stock is already in other U.S. stock gauges, such as the Russell 1000 Index and the Nasdaq 100 Stock Index.
S&P makes changes to the index when existing members are deleted, usually following an acquisition. General Motors Co. was the last stock added, joining June 6 as Warren Buffett’s Berkshire Hathaway Co. completed a purchase of H.J. Heinz & Co.
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