HSBC’s stock (NYSE: HSBC) has gained 8% YTD as compared to the 9% rise in the S&P500 index over the same period. Further, at the current price of $44 per share, it is 16% below its fair value of $52 – Trefis’ estimate for HSBC’s valuation. 

Amid the current financial backdrop, HSBC stock has seen extremely strong gains of 80% from levels of $25 in early January 2021 to around $45 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. HSBC is one of a handful of stocks that have increased their value in each of the last 3 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 16% in 2021, 3% in 2022, and 30% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that HSBC underperformed the S&P in 2021. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, 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. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could HSBC face a similar situation as it did in 2021 and underperform the S&P over the next 12 months – or will it see a strong jump?

The company surpassed the consensus estimates in the first quarter of 2024. It reported GAAP revenues of $20.75 billion – up 3% y-o-y. It was due to a significant jump in corporate & other revenues from $73 million to $3.6 billion. The segment growth was mainly driven by a $4.8 billion gain from the completion of the disposal of banking business in Canada, partly offset by a $1.1bn impairment because of the classification of Argentina business as held for sale. That said, commercial banking revenues decreased 17% y-o-y followed by a 21% drop in the wealth & personal banking business. On the cost front, total expenses as a % of revenues increased in the quarter, leading to a 2% drop in the profit before tax. Overall, profit after tax declined 2% y-o-y to $10.84 billion. 

The company’s top-line improved 30% y-o-y to $66.06 billion in FY 2023. it was primarily driven by a 29% rise in wealth & personal banking and a 39% increase in the commercial banking segments. Further, total expenses as a % of revenues witnessed a favorable drop in the year. Altogether, the profit after tax figure rose by 51% to $24.6 billion.

Moving forward, we expect the NII to drive growth in Q2 as well. Overall, we estimate HSBC revenues to touch $67.8 billion in FY2024. Additionally, HSBC’s adjusted net income margin is likely to increase in the year due to higher revenues and lower expenses. This coupled with a GAAP EPS estimate of $6.14 and a P/E multiple of just above 8x will lead to a valuation of $52.

[1] Returns as of 5/14/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.