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Value Investors Avoid HSBC, Buy These Foreign Banks Instead
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HSBC Holdings (HSBC - Free Report) has been facing setbacks of late with its shares declining 7.7% in the first three months of 2018 compared with industry’s fall of 1.9%. So, what’s the reason for investors’ apathy toward this major global bank?
Continued pressure on revenues seems to be the primary reason for investors’ apprehension about HSBC’s prospects. Though the company has been successful in streamlining businesses through divestiture/closure of non-core operations that resulted in lowering operating costs, the same led to a decline in the top line.
Specifically, core business performance indicators like net interest income, net fee and commission income and net trading income have persistently reflected muted growth over the past several quarters. Also, the low interest rate environment and the ambiguity related to Brexit are expected to continue exerting pressure on HSBC’s performance.
Another reason for investors’ pessimistic stance on the company is perhaps unending legal matters related to its past business handlings. While considerable progress has been made regarding certain legal issues over the past few years, the bank still faces several underlying challenges. Additional litigation provisions are expected to hamper its bottom line.
Given these concerns, analysts are bearish on the stock. The Zacks Consensus Estimate for 2018 and 2019 earnings has been revised downward marginally over the last 30 days.
Moreover, HSBC seems overvalued when compared with the broader industry. Its price/sales and price/earnings (F1) ratios compare unfavorably with the respective industry averages. Further, the stock has a Value Score of C. Our research shows that stocks with a Value Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential. Hence, the stock does not look promising at present.
So, a stretched valuation and downward estimates revisions indicate limited upside potential for this Zacks Rank #3 (Hold) stock.
Selecting Favorable Foreign Banks
While HSBC doesn’t appear to be an attractive pick right now, there are a handful of foreign banks that have a better Zacks Rank and Value Score. Also, these banks are expected to record earnings growth of more than 10% for 2018.
BNP Paribas SA (BNPQY - Free Report) , based in Paris, France, carries a Zacks Rank #2 and has a Value Score of A. The bank’s current-year earnings are expected grow 16.9% year over year. Further, shares of the company have gained 15% over the past year.
KB Financial Group Inc. (KB - Free Report) , headquartered in Seoul, South Korea, has a Zacks Rank #2 and Value Score of B. Its earnings for 2018 are expected to increase 11.4%. Also, shares of the company have jumped 29.4% in a year.
Buenos Aires, Argentina-based Grupo Supervielle S.A. (SUPV - Free Report) sports a Zacks Rank #1 and has a Value Score of A. Further, the company’s 2018 earnings are projected to grow at the rate of 27.6% from the prior year. Over the past year, the company’s shares have surged 84.3%.
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Value Investors Avoid HSBC, Buy These Foreign Banks Instead
HSBC Holdings (HSBC - Free Report) has been facing setbacks of late with its shares declining 7.7% in the first three months of 2018 compared with industry’s fall of 1.9%. So, what’s the reason for investors’ apathy toward this major global bank?
Continued pressure on revenues seems to be the primary reason for investors’ apprehension about HSBC’s prospects. Though the company has been successful in streamlining businesses through divestiture/closure of non-core operations that resulted in lowering operating costs, the same led to a decline in the top line.
Specifically, core business performance indicators like net interest income, net fee and commission income and net trading income have persistently reflected muted growth over the past several quarters. Also, the low interest rate environment and the ambiguity related to Brexit are expected to continue exerting pressure on HSBC’s performance.
Another reason for investors’ pessimistic stance on the company is perhaps unending legal matters related to its past business handlings. While considerable progress has been made regarding certain legal issues over the past few years, the bank still faces several underlying challenges. Additional litigation provisions are expected to hamper its bottom line.
Given these concerns, analysts are bearish on the stock. The Zacks Consensus Estimate for 2018 and 2019 earnings has been revised downward marginally over the last 30 days.
Moreover, HSBC seems overvalued when compared with the broader industry. Its price/sales and price/earnings (F1) ratios compare unfavorably with the respective industry averages. Further, the stock has a Value Score of C. Our research shows that stocks with a Value Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential. Hence, the stock does not look promising at present.
So, a stretched valuation and downward estimates revisions indicate limited upside potential for this Zacks Rank #3 (Hold) stock.
Selecting Favorable Foreign Banks
While HSBC doesn’t appear to be an attractive pick right now, there are a handful of foreign banks that have a better Zacks Rank and Value Score. Also, these banks are expected to record earnings growth of more than 10% for 2018.
With the help of the Zacks Stock Screener, we have shortlisted three foreign banks with a Value Score of A or B and a Zacks Rank #1 or 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
BNP Paribas SA (BNPQY - Free Report) , based in Paris, France, carries a Zacks Rank #2 and has a Value Score of A. The bank’s current-year earnings are expected grow 16.9% year over year. Further, shares of the company have gained 15% over the past year.
KB Financial Group Inc. (KB - Free Report) , headquartered in Seoul, South Korea, has a Zacks Rank #2 and Value Score of B. Its earnings for 2018 are expected to increase 11.4%. Also, shares of the company have jumped 29.4% in a year.
Buenos Aires, Argentina-based Grupo Supervielle S.A. (SUPV - Free Report) sports a Zacks Rank #1 and has a Value Score of A. Further, the company’s 2018 earnings are projected to grow at the rate of 27.6% from the prior year. Over the past year, the company’s shares have surged 84.3%.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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