Zacks senior financial services analyst Ann H. Heffron, CFA has decided to continue with her Hold rating in her latest report on HSBC Holdings (HBC). We excerpted the following details:
'We are continuing our Hold on HSBC Holdings Plc (or HSBC), but reducing our target price to $86. On November 14, HSBC reported in its trading update that profit before tax in the third quarter of 2007 was ahead of the prior-year quarter. Underlying revenue growth in the third quarter was higher than in the first half of the year, while cost growth was moderately lower.
'U.S. impairment charges increased significantly in the sub-prime market. For this reason, we are cutting our EPADS estimates to $7.75 from $8 for 2007 and to $8.05 from $8.75 for 2008. 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 U.S. sub-prime portfolio. In first half 2007, HSBC posted net earnings of $9.8 billion, up 13% due to strong growth in trading and fee income.
'At its current price, HSBC is trading at 10.8X and 9.8X P/E multiples of 2008 and 2009 consensus estimated earnings, respectively. These are on par the industry P/E medians based on consensus earnings. While HSBC's estimated five-year growth rate of 8% is well below the industry's 12% median, HSBC's dividend offers an above-average yield of 5.3%, which is providing support to HSBC's valuation. Our $86 target price represents roughly a 10½X P/E based upon our $8.05 EPADS estimate for 2008.'
Read the full analyst report on HBC.
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