SUPERNEWS

Equities

S&P 500 Rebalance: Block, Dell Eyed for Potential Inclusion

Wall Street Eyes S&P 500 Rebalance: Block Inc. Leads as Potential New Entrant with 7.7% First-Day Trading Upside Expected

By Alex P. Chase

ᐧ

5/9, 11:49 EDT
Apollo Global Management, Inc.
BOK Financial Corporation
Coinbase Global, Inc.
Deckers Outdoor Corporation
Dell Technologies Inc.
KKR & Co. Inc.
New York Community Bancorp, Inc.
Block, Inc.
Whirlpool Corporation
Zions Bancorporation N.A.
article-main-img

Key Takeaway

  • Wall Street anticipates S&P 500 rebalance; stocks like Block Inc. could be added, benefiting from an average first-day trading upside of 7.7%.
  • Financial services sector underrepresented in the index, making companies like Square and Coinbase potential wild card entries.
  • Analysts also eye Dell for inclusion due to its market size and presence, with less likelihood for KKR and Apollo Global Management.

S&P 500 Rebalance Anticipation

Wall Street analysts are closely monitoring potential changes to the S&P 500 index, with the quarterly rebalance expected to introduce new stocks. The inclusion in the index is highly regarded, offering significant benefits. Barclays analyst Ramsey El-Assal highlighted that stocks added to the index see an average first-day trading upside of 7.7%. The most recent additions were Super Micro Computer and Deckers Outdoor, which replaced Whirlpool and Zions Bancorporation in March. The anticipation of new entrants is based on various factors, including financial performance and market capitalization.

Potential New Entrants

Block Inc. is among the top contenders for inclusion in the S&P 500, following its report of positive net income in the fourth quarter of 2023. With a market capitalization of $45 billion, Block's addition could address the current underweighting of financial services within the index. El-Assal noted, "We estimate Financial Services is the second most underweight industry category represented in the S&P 500 index currently." The possibility of mergers and acquisitions involving current index members could further open opportunities for new entrants like Block.

Sector Analysis and Other Candidates

The financial services sector is notably underrepresented in the S&P 500, prompting analysts to consider companies like Square and Coinbase as potential "wild card" entries. Keefe Bruyette & Woods analyst Shreyank Gandhi also identified Dell as a strong candidate for inclusion due to its size and market presence. Other firms, such as KKR and Apollo Global Management, are considered less likely additions. Gandhi also speculated on changes to the S&P Midcap 400 and S&P SmallCap 600, suggesting possible movements for Ryan Specialty Holdings, New York Community Bancorp, Axis Capital Holdings, and BOK Financial.

Street Views

  • Ramsey El-Assal, Barclays (Bullish on Block):

    "We estimate Financial Services is the second most underweight industry category represented in the S&P 500 index currently (Software & Services being the most under-represented)... We believe this underrepresentation makes SQ, with its $45B market cap, a likely candidate for inclusion."

  • Shreyank Gandhi, Keefe Bruyette & Woods (Neutral on financial services sector's representation in S&P 500):

    "Analyst Shreyank Gandhi views both Square and Coinbase as potential 'wild card' entries given their recent eligibility, citing the index’s preference toward newly qualified names... Above all, Gandhi views Dell as the most likely name to join given its size."