HSBC’s stock (NYSE: HSBC) has gained 32% YTD as compared to the 27% rise in the S&P500 index over the same period. This compares to Barclay’s stock which has gained almost 70% over the same period. So what are some of the trends that are driving HSBC stock higher?
The banking behemoth posted a strong set of results for the third quarter of 2024. While pre-tax profits improved to $8.5 billion from $8 billion in the same period last year, HSBC revenues stood at $17 billion, up about 5% year-over-year, driven primarily by increased customer interest in wealth products amid rising market volatility. Additionally, trading and market-related businesses, particularly in currency, stock, and bond markets witnessed stronger activity. However, net interest income fell to $7.6 billion, down $1.6 billion from the year-ago period, primarily due to business disposals and higher interest expenses on liabilities. Operating expenses rose marginally by 2% to $8.1 billion on account of increased spending on technology and inflationary pressures.
HSBC is one of a handful of stocks that have increased their value in each of the last 4 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 21% in 2021, 8% in 2022, and 39% in 2023. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. So does HSBC stock look attractive going forward?
We remain positive on HSBC stock with a $52 price estimate, which is slightly ahead of the current market price. There are a couple of factors for the optimism. Firstly, HSBC’s valuation is reasonable, with the stock trading at about 1x tangible book value (company’s net assets, less goodwill). HSBC is also looking to cut costs and make its business more efficient. A few months ago, the bank announced plans to reorganize its business structure into four key business lines while streamlining its geographic divisions into eastern and western markets. HSBC has been doubling down on its capital return program. The company’s dividend yield stands at over 4% currently and the bank also announced a $3 billion share buyback over the last quarter, taking its total buyback amount announced this year to about $9 billion. This could also help to support the stock price. HSBC is also targeting a mid-teens return on average tangible equity for 2024 and 2025, which is above the industry average. See our analysis of HSBC’s valuation for a closer look at what’s driving HSBC stock.
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