We are initiating our coverage on HSBC Holdings plc (HBC) with an Underperform recommendation. Our primary concern is the harsh impact from the deepening Eurozone crisis. Moreover, the company is suffering from weak revenue growth in its mature markets due to the ongoing low interest rates and regulatory restrictions.
The company's cost containment measures will help it deal with economic pressures to a great extent. But we expect high inflation in some key Asian markets, slothful loan growth, insufficient core operating performance and high wage inflation to restrict the company's growth, at least in the near term.
Our six-month target price of $36.00 per ADS equates to about 8.5x our earnings estimate for fiscal 2011. This target price implies an expected negative total return of 9.0% over that period. This is consistent with our long-term Underperform recommendation on the ADSs.
HSBC HOLDINGS (HBC): Free Stock Analysis Report
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