Stifel Equity Trading Desk analysts Jordan E. Rohan, Michael B. Purcell and Alex Chavdaroff give Facebook Inc (NASDAQ:FB) a buy rating. Facebook will be added to the S&P 500 on December 20th. Facebook Inc (NASDAQ:FB) will be the 30th largest company in the index. Shares were up $2 (4%) in after-hours trading on heavy volume, and analysts believe it will continue to increase in the near term. Stifel analysts believe fundamental catalysts (FBX, Instagram monetization, video ads, among others) will drive further upside once the inclusion into the S&P 500 is fully priced in.

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Facebook added to S&P 500

Facebook Inc (NASDAQ:FB) will be replacing Teradyne, Inc. (NYSE:TER) in the S&P 500 (INDEXSP:.INX) beginning December 20, 2013. Facebook will also be added to the S&P 100. With a market cap of over $120bn, Facebook will be the 30th largest component of the S&P 500, between Schlumberger Limited. (NYSE:SLB) and Intel Corporation (NASDAQ:INTC).

Upside likely to be captured in few days

Given the large trading volume and $2 increase in after-hours trading, analysts believe most of the upside from Facebook Inc (NASDAQ:FB)’s inclusion in the S&P 500 will be captured in the next day or two. That being said, the research firm’s analysts believe shares will see continued upside from fundamental catalysts such as FBX, Instagram monetization, rollout of video ads, and the continued convergence in the price of FB ad inventory towards average display CPMs.

Facebook’s Target Price Methodology

Stifel’s $56 target price is DCF based and assumes Facebook Inc (NASDAQ:FB) has 1.55bn MAUs in 2016 and an ARPU of $9.33 in firm’s base case and $11.75 in their bull case. For the analysis, analysts applied a 3% and 2% FCF target yield to calculate their terminal value and discount back at 15%. Analysts weight their base case as 67% likely and their bull case at 33%.

Risks for Facebook

There are always risks that the target price for any security will not be realized. In addition to general market and macroeconomic risks, for Facebook Inc (NASDAQ:FB), these risks include: competition, mobile monetization and shifts in advertising trends.