(Adds details on Covestro performance, shares, analyst)
FRANKFURT, March 6 (Reuters) - Covestro, a maker of materials for insulation foams and transparent plastics, will replace broadcaster ProSiebenSat.1 Media in Germany's blue-chip DAX index, after Bayer sold off Covestro shares.
The surprise switch was based on the fast-entry rule, stock exchange operator Deutsche Boerse said late on Monday, which allows a company to enter an index ahead of the stock exchange's regular review if it ranks among the biggest 25 companies in terms of market capitalisation and turnover.
Covestro shares gained 3.3 percent in early Tuesday trade, as the DAX inclusion qualifies the stock for funds that passively track the index and for large-cap portfolio managers that use the DAX as part of their investment universe. ProSieben shares slipped 0.2 percent.
Covestro's former parent Bayer last year sold 4.7 billion euros worth of shares in the plastics business to help finance its planned takeover of seeds company Monsanto, boosting the number of freely traded shares.
That reduced the stake held directly by Bayer to 14.2 percent and moved the drugs and pesticides maker closer to its planned exit of Covestro.
Covestro, formerly known Bayer MaterialScience, is generating cash faster than previously thought, helped by buoyant demand for materials that the chemicals industry is struggling to meet and amid limited opportunities to invest in new plants and equipment.
Its shares have gained almost 38 percent over the past six months, helped by a boost in earnings and a share buyback programme that will likely continue beyond 2019.
ProSieben will move to the MDAX index of Germany's 50 biggest companies below the blue-chip level.
The index changes will become effective on March 19. The next regular index review will be held on June 5.
Separately, Raymond James analyst Patrick Lambert lifted his recommendation for Covestro to "strong buy" from "outperform", citing the company's confident outlook for 2018 and the use of transparent polycarbonate plastics in cars and electronics.
"Covestro remains the cheapest stock in our sector on all metrics, trading at a 21 percent discount," he said. (Reporting by Ludwig Burger and Maria Sheahan Editing by Mark Potter)