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Movement in the HSBC (LSE:HSBA) The share price following the bank’s Q3 2023 results has been fairly subdued in early trading. A new $3 billion share buyback program and a 50% dividend payout rate target for this year and next were particularly juicy highlights for potential investors to digest.
However, rising costs could have put a damper on HSBC shares. As a result, the lender missed the city’s consensus forecast for quarterly pretax earnings growth. So are bank shares a cheap buy now below 600p? Or should potential investors consider avoiding the stock?
Here is my opinion.
Growth trajectory
The HSBC share price has performed well recently, rising 13% so far this year and 34% over 12 months. It has significantly surpassed the FTSE 100 index during those time periods.
However, long-term shareholders are no strangers to disappointment. The stock is down 7% compared to five years ago.
HSBC made $7.7 billion in pretax profits during the quarter. At first glance, this figure compares very favorably with the $3.2 billion recorded in the same period last year. A 235% jump is certainly a striking improvement!
However, the group missed the consensus forecast of $8.1 billion, which could pose a challenge to further share price growth. After all, the bank was expected to perform well in the third quarter due to the positive impact of rising interest rates.
However, chief executive Noel Quinn said he hopes the results will be well received by Ping an insurance group. This could finally mark the removal of an old thorn in HSBC’s side, considering the major Chinese shareholder previously waged a campaign to split the bank’s operations in the UK and Asia, against the board’s wishes. .
Overall, I think there is enough news in the headlines to keep potential investors interested, especially with a new share buyback that exceeded expectations by $1 billion and a strong forward dividend coverage of two times earnings .
Valuation
A quick look at a number of valuation metrics shows that HSBC shares look slightly more expensive than shares of the FTSE 100’s main competitors.
| Metric | Barclays | HSBC | Lloyd’s | NatWest |
|---|---|---|---|---|
| P/E Ratio | 3.74 | 6.17 | 5.18 | 3.87 |
| Price/earnings ratio | 0.35 | 0.92 | 0.56 | 0.51 |
To keep the valuation attractive, a series of initiatives to ensure efficiency savings are now a key priority. One potential cause for concern that investors should keep in mind is the 5% increase in costs the bank anticipates this year, excluding its acquisition of Silicon Valley Bank UK.
A cheap stock to buy?
HSBC appears to have weathered recent challenges, such as rising mortgage rates and sluggish housing market activity in developed markets, better than many lenders. Crucially, its net interest margin of 1.7% (an important measure of profitability) beat expectations of 1.68%.
However, there were some flies in the ointment in HSBC’s third-quarter earnings. Additionally, the bank is particularly exposed to China’s weakening economy. The possible liquidation of the real estate giant Evergrande Group There is a significant cloud looming on the horizon.
That said, in my opinion, improvement in several indicators and a strong dividend outlook are enough to offset the risks. If I had extra money, I would buy HSBC shares today. I believe they deserve consideration by investors seeking exposure to the banking sector in their portfolios.
