What To Expect From HSBC Stock?

HSBC’s stock (NYSE: HSBC) has gained 3% YTD as compared to the 14% drop in the S&P500 index over the same period. Further, at the current price of $31 per share, it is 27% below its fair value of $43 – Trefis’ estimate for HSBC’s valuation. The company topped the consensus estimates of revenues and earnings, with total GAAP revenues increasing by 2% y-o-y to $12.8 billion. It was driven by a 12% y-o-y rise in the global banking & markets segment (includes treasury & security services, sales & trading, and investment banking) and an 11% growth in the commercial banking unit. Notably, the net interest income (NII) for the company improved by 13% to $7.5 billion in the quarter, thanks to higher interest rates and an increase in interest-earnings assets. On the flip side, the revenue growth was partially offset by a drop in wealth & personal banking (WPB) and corporate revenues. Despite the modest increase in revenues, the adjusted net income increased 62% y-o-y to $5.5 billion. It was primarily because of a tax credit received in the quarter, driven by a $1.8 billion deferred tax asset gain on recognition of brought-forward tax losses.

The company’s top-line decreased by 2% y-o-y to $49.6 billion in 2021. It was primarily driven by lower FICC (fixed income, currency & commodity) trading revenues, followed by a slight drop in the wealth & personal banking (WPB) segment. Further, the bank suffered in terms of NII which fell by 4% y-o-y because of the lower interest rate environment. That said, the adjusted net income more than tripled from $3.9 billion to $12.6 billion, mainly due to a favorable decrease in the provisions for credit losses.

The firm posted GAAP revenues of $25.2 billion in the first half of 2022. We estimate HSBC revenues to touch $53 billion in the full FY2022. Additionally, HSBC’s adjusted net income margin is likely to see a slight increase in the year, enabling the bank to touch $13.5 billion in adjusted net income. This coupled with an annual EPS of $3.33 and a P/E multiple of just below 13x will lead to the valuation of $43.

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