Still Holding HSBC Holdings

We are continuing our Hold on HSBC Holdings PLC (HBC - Analyst Report), but raising our target price to $85. In its first quarter trading update, HSBC noted that profits were ahead of the year-ago quarter as solid results in its emerging markets and European businesses were partly offset by weaker US profits due to higher consumer finance loan impairments and additional write-downs in Global Banking and Markets.

We are maintaining our 2008 EPADS estimate at $7.00, and initiating our 2009 estimate at $8.00. Earnings should reflect strong loan and deposit growth, especially in emerging markets and improved productivity, partially offset by increased impairment charges due to problems in the US subprime and other credit markets.

At its current price, HSBC is trading at 12.3X and 9.8X P/E multiples of 2008 and 2009 consensus estimated earnings, respectively. These are above the industry P/E medians based on consensus earnings. While HSBC's consensus estimated five-year growth rate of 6% is well below the industry's 10% median, HSBC's dividend offers an above-average yield of 5.5%, which is providing support to HSBC s valuation. Our $85 target price represents roughly a 10 ½X P/E based upon our $8.00 earnings estimate for 2009.

Read the full analyst report on HBC