I hold both HSBC (LSE: HSBA) and Lloyds (LSE: LLOY) shares in my income portfolio. They’re the only FTSE 100 bank stocks I own, and I’d like to add to one of them soon.
But which one? Let’s find out.
Financial performance
In the first quarter, Lloyds’ pre-tax profit fell to £1.6bn, down from £2.3bn in the same period last year. It blamed lower net interest income and rising operating costs.
However, an impairment charge of £57m was way below what analysts had forecast (£280m). This shows the resilience of borrowers, while alarmist 2023 headlines about a UK property crash haven’t aged well.
HSBC reported Q1 revenue of $20.8bn, up 3% year on year and well above analysts’ expectations for $16.9bn.
Pre-tax profit also came in marginally higher than expected at $12.6bn. This included a $4.8bn gain following the disposal of its business in Canada.
Both banks have maintained the 2024 guidance they previously set out.
Value
Based on current earnings per share forecasts, Lloyds stock is trading on a forward price-to-earnings (P/E) ratio of 8.5. Meanwhile, the forward-looking P/E ratio for HSBC is just 7.1.
Both metrics are lower than the overall FTSE 100, which is also still cheap despite rising to new record highs in recent weeks.
This cheapness is reflected in the dividend yields. The Black Horse Bank is carrying a forward yield of 5.9% for 2024 and 6.3% for 2025. HSBC’s stands at 8.9% (inclusive of a special dividend) and 6.9%, respectively.
Price targets
Admittedly, it’s probably wise to take analysts’ share price targets with a large pinch of salt. They can sometimes be way off the mark.
Nevertheless, they might add weight to the investment case one way or the other.
Currently, there’s a consensus 58p price target for Lloyds stock, which is about 7.5% higher than the current share price. For HSBC, the price target is 796p, which is around 12.5% higher than its trading price.
Growth and risks
Lloyds predominantly focuses on savings and mortgages in the UK. Therefore, its long-term growth prospects appear moderate compared with HSBC’s.
That’s not necessarily a bad thing, as the UK economy is long-established and provenly profitable. But it’s also beset with low productivity growth and Brexit-related uncertainties.
For better or worse, Lloyds is tethered to the health of the domestic economy.
HSBC, on the other hand, has its strong Asian heritage and is focused on global retail banking and wealth management. It has big ambitions across the Asia Pacific region.
These high-growth markets sure do get the pulse racing, but they also come with risks, as we’ve seen recently with the Chinese property sector crisis.
HSBC recorded a giant $3bn impairment on its stake in China’s Bank of Communications (BoCom) last year. More problems can’t be ruled out.
My verdict
Putting all this together, HSBC seems to offer the better value right now. The stock is cheaper on a P/E multiple basis and carries a higher dividend yield.
Meanwhile, the firm has superior growth potential and the consensus share price target is higher than Lloyds’.
To be clear, I like both banks as part of a diversified passive-income pairing. However, I’m favouring putting more money into HSBC shares right now.
