Will Recent News Affect HSBC?

With shares of HSBC (NYSE:HBC) trading around $52, is HBC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

HSBC is a global banking and financial services organization that provides various banking and financial products and services. The company operates in four businesses: Retail Banking and Wealth Management, Commercial Banking, Global Banking and Markets, and Global Private Banking. Financial businesses have a significant influence on economies around the world. HSBC provides the banking and financial services that help fuel many of the day-to-day processes of most companies.

Recently, a $1.92 billion settlement with U.S. authorities over charges that the bank illegally carried out financial transactions for Mexican and Colombian drug cartels and other criminals has been approved by a U.S. district judge in New York. The settlement has been heavily criticized since it allows the bank, which essentially became a go-to institution for foreign money launderers through various oversights and errors within the company, to escape criminal charges. HSBC may struggle a bit after this news but watch and see how markets react.

T = Technicals on the Stock Chart are Mixed

HSBC stock has gained ground since hitting lows during the 2008 Financial Crisis. The stock is now trading near multi-year highs so it may struggle here a bit. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, HSBC is trading slightly below its key averages which signal neutral price action in the near-term.

HBC

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of HSBC options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

HSBC Options

29.23%

83%

80%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Steep

Average

August Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on HSBC’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for HSBC look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

153.80%

23.08%

-53.57%

14.29%

Revenue Growth (Y-O-Y)

7.48%

0.68%

-14.23%

5.00%

Earnings Reaction

2.15%

-1.60%

-0.76%

1.45%

HSBC has seen mostly increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about HSBC’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has HSBC stock done relative to its peers, Barclays (NYSE:BCS), Citigroup (NYSE:C), UBS (NYSE:UBS), and sector?

HSBC

Barclays

Citigroup

UBS

Sector

Year-to-Date Return

-1.60%

-0.58%

20.48%

7.88%

6.51%

HSBC has been a weak relative performer, year-to-date.

Conclusion

HSBC is a banking and financial services company that provides service to consumers and companies across the globe. The stock has made modest progress in recent years but is now near price levels that may see some selling pressure, specially with news of a settlement. Over the last four quarters, earnings and revenue figures have been mostly increasing; however, the markets have had mixed feelings about the company’s recent earnings reports. Relative to its peers and sector, HSBC has been a weak  year-to-date performer. WAIT AND SEE what HSBC does in coming quarters.

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