Up 24% Since The Beginning Of 2023, What Should You Expect From HSBC Stock?

HSBC’s stock (NYSE: HSBC) has gained 24% YTD as compared to the 19% rise in the S&P500 index over the same period. Further, at the current price of $39 per share, it is 20% below its fair value of $48 – Trefis’ estimate for HSBC’s valuation. 

Amid the current financial backdrop, HSBC stock has seen extremely strong gains of 60% from levels of $25 in early January 2021 to around $40 now, vs. an increase of about 20% 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 24% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 19% in 2023 (YTD) – 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 V, JPM, 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 missed the consensus estimates of profit in the third quarter of 2023, despite a significant jump in the profit after tax figure. It posted total GAAP revenues of $16.2 billion – up 40% y-o-y, mainly due to a 16% rise in the net interest income and a 97% growth in the noninterest revenues. The net interest income was up across all the global segments, thanks to higher interest-earning assets and improvement in the net interest margin. Similarly, the non-interest revenues benefited from the non-recurrence of impairment loss due to the planned sale of retail banking operations in France, followed by higher net income from financial instruments held for trading. Overall, the profit after tax increased 135% to $6.26 billion in the quarter.

The company’s top line improved 47% y-o-y to $53.04 billion in the first nine months of FY 2023. While all the segments reported growth, the rise was mainly driven by a 64% jump in the wealth & personal banking and a 53% increase in the commercial banking segments. Altogether, the profit after tax figure rose by more than 100% to $24.3 billion

Moving forward, we expect the NII to continue its growth momentum in Q4. Overall, we forecast HSBC revenues to touch $69 billion in FY2023. 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 $5.48 and a P/E multiple of just below 9x will lead to a valuation of $48.

[1] Month-to-date and year-to-date as of 11/27/2023
[2] Cumulative total returns since the end of 2016

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