HSBC Shares Rally off 10% Correction – Can Bulls Sustain Momentum?

HSBC shares (LON:HSBA) have rallied more than 6% from the recent pullback, where 840 held firm and the stock continues the path back towards 900p. As markets look ahead to the first-quarter earnings report expected next month, the stock seems to be consolidating recent gains, carefully balancing optimism with the inherent risks of a corporate transformation.

Over the past month of trading, HSBC shares have fluctuated in the 840 to 940 range, with a 10% pullback looking healthier on the recent bounce. This caps a period of remarkable strength for the bank’s stock, which has delivered impressive returns over multiple time horizons, despite bumping into some resistance recently around 895.

• 52-Week Range – 610.89 – 950.20
• YTD Return – 13.98%
• 12-Month Return – 45.17%

Shareholders have witnessed gains of 13.96% since the start of this year, building upon a powerful 12-month rally that saw the stock gain 45%. This sustained upward momentum has pushed the share price comfortably above key technical indicators, including its 50-day moving average (~ 862p) and its 200-day moving average (~766p).

Recent HSBC Financials

• Share Buyback – $2.0B (Announced Feb 2025)
• Dividend Yield – 5.72%, $0.87 per share (FY2024)

The positive market reaction follows the release of HSBC’s Full Year 2024 results in mid-February. The bank reported a commendable Profit Before Tax of $32.3 billion, representing a solid $2.0 billion increase compared to the previous year, underpinned by broad-based performance across its global footprint.

Full-year revenue edged up 2.08% year-over-year to $67.43 billion, with EPS landing at $1.30. However, the fourth quarter painted a slightly more complex picture. While Q4 EPS of $0.28 met analyst expectations and showed a healthy 16.67% year-over-year increase, Q4 revenue, despite beating consensus forecasts at $16.50 billion, declined by a notable 18.18% compared to the same period in 2023.

This revenue dip raises questions about potential headwinds or cyclical factors impacting the bank’s top-line growth as it entered 2025.

A cornerstone of HSBC’s investment appeal remains its solid capital return policy. Concurrent with its earnings announcement, the bank unveiled a substantial $2 billion share buyback program, signalling management’s confidence in the intrinsic value of the stock and its commitment to enhancing shareholder value. Furthermore, the bank declared a total dividend of $0.87 per share for 2024, including a special dividend component.

The upcoming fourth interim dividend payment of $0.36 per share, due on April 25, 2025, contributes to an attractive dividend yield currently estimated around 5.7%. This yield is a significant draw for income-seeking investors, especially when coupled with a relatively modest Price-to-Earnings (P/E) ratio hovering around 8.5 to 9.2, which suggests the stock may still offer value despite its strong run-up.

What Comes Next?

Strategically, HSBC remains deeply engaged in a multi-year effort to reshape its global operations. Management continues to divest non-core or lower-return businesses, evidenced by the sales of its operations in Canada and France, and ongoing efforts to exit Argentina. The stated goal is to simplify the bank’s structure, unlock capital, reduce operating costs, and focus resources on higher-growth opportunities, particularly within its wealth management division and key Asian markets.

🟩 The Bull Case

• Generous Capital Returns: A compelling dividend yield exceeding 5.7% combined with substantial share buyback programs ($2bn recently announced) offers significant direct returns to shareholders.
• Strategic Focus & Simplification: Divestment of non-core assets (Canada, France, Argentina) aims to streamline operations, cut costs, and reallocate capital towards higher-growth Asian markets and wealth management.
• Proven Profitability: Consistent ability to generate substantial profits, as demonstrated by the $32.3 billion Profit Before Tax in FY2024.
• Attractive Valuation: A single-digit P/E ratio (around 8.5-9.2) suggests the stock may still be undervalued relative to its earnings power and global franchise.
• Positive Technical Momentum: The share price trading firmly above its 50-day and 200-day moving averages indicates strong investor sentiment and technical support.

🟥 The Bear Case

• Q4 Revenue Contraction: The significant year-over-year decline in Q4 2024 revenue (-18.18%) raises concerns about potential underlying top-line weakness or macroeconomic pressures.
• Restructuring Execution Risk: Successfully executing large-scale asset sales and achieving targeted cost savings involves significant challenges and potential delays that could impact expected benefits.
• Global Macroeconomic Sensitivity: As a bank with vast international exposure, HSBC’s earnings are vulnerable to slowdowns in global economic growth, fluctuations in interest rates, and geopolitical instability.
• Complex Regulatory Landscape: Operating across numerous jurisdictions subjects HSBC to a complex and ever-evolving web of regulations, which can increase compliance costs and operational risks.
• Insider Selling Activity: Although potentially routine, recent share disposals by top executives could be interpreted by some market participants as a less-than-bullish signal on near-term valuation.

While successful execution of this complex strategy could lead to improved efficiency and higher returns on equity, such large-scale transformations are not without execution risk. Recent share sales by senior executives, though potentially part of standard financial planning, are also data points monitored by the market.

Looking forward, the analyst community maintains a cautiously optimistic stance, reflected in a “Moderate Buy” consensus rating. The average price target sits near 918.75p, implying some further, albeit modest, upside from current levels. However, the wide range of individual targets (795p to 1205p) highlights the divergence of opinions between the bulls and bears.

All eyes will now turn to the Q1 2025 earnings release, expected at the end of April, which will provide crucial insights into revenue trends, cost-saving progress, and any further updates on capital management and strategic priorities.