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Analyst Blog

On May 30, 2013, we reiterated our long-term recommendation on HSBC Holdings plc at Neutral. This was based on the company’s strong first-quarter results, which were significantly better than the year-ago period.

Why Neutral?

HSBC’s earnings for the said quarter came in at 33 cents per share, easily beating the prior-year quarter earnings of 16 cents. The robust performance was driven by top-line improvement and reduced operating expenses. However, dismal performances by all divisions, except Global Banking and Markets, and Other, acted as headwinds.

Following the first-quarter results, the Zacks Consensus Estimate for 2013 has remained stable at $4.72 per share over the last 30 days. For 2014, the Zacks Consensus Estimate rose 2.0% to $5.18 per share, over the same time-frame. Hence, HSBC now has a Zacks Rank #3 (Hold).

With its sole focus on fast-growing and profitable markets, in May 2013, HSBC announced the second round of its cost-cutting program with the aim of saving $3 billion by 2016. Moreover, amid an uncertain macro environment, the company remains strong with respect to its balance sheet and capital position, which attribute it a competitive advantage over other banks.

However, revenue growth at HSBC is expected to remain sluggish in the subsequent quarters, as the low interest rate environment will continue to hamper revenue generation. Further, it would become difficult for the company to improve operating results based merely on uncertain benefits like lower impairment charges, as the tepid economic recovery and low interest rate environment are expected to adversely impact its financials in the coming quarters.

Other Foreign Banks Worth Considering

Better performing foreign banks include Mitsubishi UFJ Financial Group, Inc. , Deutsche Bank AG and Credit Suisse Group AG , all of which carry a Zacks Rank #2 (Buy).

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