HSBC stock is undervalued4 Sep 2020 17:29
But does it mean HSBC stock is undervalued? Sure, it does. Trefis estimates HSBC’s valuation to be around $26 per share - about 20% above the current market price - based on an upcoming trigger explained below and one risk factor.
The trigger is an improved trajectory for HSBC’s revenues over the second half of the year. We expect the company to report $52.5 billion in revenues for 2020 – lower than the figure for 2019. Our forecast stems from the belief that as economic conditions have started to recover in Q3, the bank’s performance will steadily improve. Further, the easing of lockdown restrictions in most of the world is likely to help consumer demand, benefiting the overall business scenario. Moreover, HSBC’s Asia banking business has remained robust, with the bank reporting a profit of more than $7.3 billion in YTD 2020. The bank’s investment banking operations have driven positive revenue growth in Q1 and Q2 due to higher trading volumes, with the bank’s trading revenues surging by 35% in the first half of 2020 as compared to the year-ago period. On similar lines, HSBC’s advisory and underwriting fees saw significant growth in the first half of 2020 due to a jump in debt underwriting deals after the Fed stimulus. This has partially offset the impact of weak revenues in other segments. While we expect the trading income to drop in the subsequent quarters, it is likely to be still higher than the year-ago period. Overall, we see the bank reporting an EPS in the range of $1.02 for FY2020.
Thereafter, HSBC’s revenues are expected to improve to $53.7 billion in FY2021, due to an increase in retail revenues, partially offset by a decline in sales & trading revenues. Further, the net income margin is likely to grow as compared to the previous year due to a decline in provisions for credit losses, leading to an EPS of $1.91 for FY2021.
Finally, how much should the market pay per dollar of HSBC’s earnings? Well, to earn close to $1.91 per year from a bank, you’d have to deposit about $191 in a savings account today, so about 100x the desired earnings. At HSBC’s current share price of roughly $22, we are talking about a P/E multiple of just below 12x. And we think a figure closer to 13.5x will be appropriate.
https://www.forbes.com/sites/greatspeculations/2020/09/01/hsbc-looks-undervalued-as-asian-economy-gets-back-on-track/#64a9461c7679
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