HSBC stock has gained 8% year-to-date, but it still trades 16% below its fair value of $52 per share according to Trefis. Despite strong gains over the past few years, HSBC has struggled to consistently beat the market, underperforming the S&P 500 in 2021. With the current uncertain macroeconomic environment, including high oil prices and elevated interest rates, investors are unsure if HSBC will be able to outperform the market in the next 12 months.
In the first quarter of 2024, HSBC surpassed consensus estimates with GAAP revenues of $20.75 billion, up 3% year-over-year. The growth was mainly driven by a significant jump in corporate and other revenues, partially offset by a drop in commercial banking and wealth and personal banking revenues. Despite the revenue growth, total expenses as a percentage of revenues increased, leading to a 2% drop in profit before tax. Overall, profit after tax declined 2% year-over-year to $10.84 billion.
For the full year 2023, HSBC saw a 30% year-over-year improvement in its top-line, reaching $66.06 billion. This growth was primarily driven by a rise in wealth and personal banking and commercial banking segments. Total expenses as a percentage of revenues improved for the year, leading to a 51% increase in profit after tax to $24.6 billion. Looking ahead, HSBC expects the net interest income to drive growth in the second quarter and estimates revenues to reach $67.8 billion in FY2024. Additionally, the company’s adjusted net income margin is expected to increase due to higher revenues and lower expenses, leading to a projected GAAP EPS of $6.14 and a P/E multiple of just above 8x, resulting in a valuation of $52 per share.
In recent years, it has been challenging to consistently beat the S&P 500 for individual stocks, including those in the financial sector and even mega-cap tech companies. However, the Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the benchmark index each year. This portfolio has provided better returns with less risk compared to the S&P 500, offering a smoother performance over the years.
Despite its recent performance, investors are cautious about HSBC’s ability to outperform the market given the current macroeconomic environment. The company will need to navigate high oil prices and elevated interest rates to see continued growth in its revenue and profit margins. With a fair value estimate of $52 per share and strong growth prospects for the year, investors will be closely watching HSBC’s performance in the coming months to see if it can deliver on its expectations and outperform the market.
