HSBC Holdings Plc: Here’s Why Analysts Are So Bullish!

Here is why the analyst community is becoming more bullish on HSBC Holdings Plc (LON: HSBA) shares.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Many investors could be forgiven if they have been left feeling disappointed by the performance of HSBC (LSE: HSBA) shares during recent years, as they have featured consistently among the banking sector’s worst performers.

Key to HSBC’s weakness has been a significant expansion in the value of household and corporate debt within emerging markets, which has coincided with a slowdown in the Chinese economy. Given the exposure to emerging markets within HSBC’s loan book, it is perhaps understandable why the market has continued to re-rate the stock during the last 24 months.

This begs the question, why do analysts now appear to hold such a bullish outlook for the shares?

Should you invest £1,000 in Rio Tinto right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rio Tinto made the list?

See the 6 stocks

Regulatory capital drives brighter analyst consensus

While HSBC has long held one of the strongest capital buffers among the UK listed banks, it is the after-effects of a robust capital policy that seem to have driven a brightening consensus among the investment banking industry heavyweights.

HSBC’s CET1 capital ratio currently sits just shy of 11%, while in 2017 it is projected to reach 14%. This should provide the group with a sufficient enough buffer to meet any challenges that further China-induced turmoil could potentially throw at it.

Furthermore, with management having suggested that they will take little further action in terms of capital buffers for the current year, it now seems safe to assume that the dividend should at least remain flat with that of the previous year.

As of the end of September, Citi Group, Goldman Sachs, UBS, Investec and Societe Generale had all rated the shares as a buy within the preceding eight weeks, while Berenberg has also reiterated its 750p price target for the stock.

Cheap, Undervalued Or Just Fairly Valued?

While, at 520p each the shares are at multi-year lows, the most striking thing about HSBC at present is the valuation.

This is as the group currently trades at 0.9x net asset value per share, 1x tangible book value and on a forward P/E of 9.8x the consensus for 2015 earnings per share.

In addition, if consensus estimates for total dividends of 33 pence per share are correct, the shares will offer a yield of 6.4% that is covered 1.5x over by EPS.

Summing Up

It is possible that the current slowdown in emerging markets could still prove to be a headwind to earnings during the coming years, which may form a weight around the ankles of the shares.

However, it is also possible that HSBC’s actions on regulatory capital and costs in recent times could still provide it with the ability to improve shareholder returns during the coming years.

At the very least, the likelihood of lower provisions toward regulatory capital buffers in the current year implies a fair chance of HSBC meeting consensus expectations for dividends in 2015 and, with the analyst community now beginning to upgrade estimates for the shares, I can’t help but think that HSBC investors may still have their day yet.

Should you invest £1,000 in Rio Tinto right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rio Tinto made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Skinner has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Dividend investors! Here’s what Warren Buffett says builds wealth in the stock market

Reinvesting dividends at yields of 8% or higher looks like a good way of building wealth. But Warren Buffett has…

Read more »

Calendar showing the date of 5th April on desk in a house
Investing Articles

Here’s my Stocks and Shares ISA plan for 2025-26

A Stocks and Shares ISA helps investors avoid taxes on dividends and capital gains. And Stephen Wright has a plan…

Read more »

Dividend Shares

Of the 20 highest-yielding FTSE 100 stocks, this is my top pick

This FTSE 100 stock currently offers a yield of 6.4%. But Edward Sheldon believes it’s capable of providing share price…

Read more »

Investing Articles

Could Tesla’s share price jump over the next 12 months? These analysts think so!

Tesla's share price has fallen by almost a third since 1 January. But optimism is high that Elon Musk's company…

Read more »

Investing Articles

I asked ChatGPT where the FTSE 100 will be in 6 months: here’s what it said…

Let’s be realistic, ChatGPT can’t predict the future. But it did do a good job of compiling data from brokerages…

Read more »

Investing Articles

Could the Rolls-Royce share price hit £10?

The Rolls-Royce share price has taken most analysts by surprise with almost everything going right for the British engineering giant.

Read more »

Investing Articles

4 REITs Fools own for passive income

REITs often have higher-than-average dividend yields compared to other stocks, making them a solid choice to consider for passive income…

Read more »

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »