On Dec 19, 2014, we issued an updated research report on HSBC Holdings plc (HSBC). Although the company continues to benefit from the successful implementation of its expense-savings initiatives, we remain concerned about subdued revenue growth.
HSBC had announced the second round of its cost-cutting program in May 2013 with an aim to save an additional $2–$3 billion by 2016. The second round of the program foregrounded the primary strategy of focusing on core operations in fast-growing and profitable markets.
Though operating expenses increased in the first nine months of 2014 owing to higher risk management and compliance costs, HSBC remains on track to achieve the next phase of strategy implementation. Notably, the company has lately been divesting businesses in less profitable regions, while investing in core enterprises through expansion in markets with growth potential.
However, given the low interest rate environment, HSBC’s top-line growth is expected to remain sluggish. In the first nine months of 2014, underlying revenues fell 3% year over year. Decreasing loan demand and lower trading income due to lesser client activity also continue to weigh on overall top-line growth.
Given the concerns over pressure on top line, analysts have a mixed outlook for HSBC’s future prospects. Over the last 60 days, the Zacks Consensus Estimate for 2014 increased 4.8% to $4.55 per ADR, while for 2015 it remained stable at $5.00 per ADR.
HSBC currently carries a Zacks Rank #3 (Hold).
Stocks that Warrant a Look
Better-ranked foreign banks include Grupo Financiero Galicia S.A. (GGAL), CorpBanca (BCA) and Barclays PLC (BCS). All these stocks sport a Zacks Rank #1 (Strong Buy).
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