Right now I’m comparing some of the most popular companies in the FTSE 100 with their sector peers in an attempt to establish which one is the more attractive investment.
Today I’m looking at HSBC (LSE: HSBA) (NYSE: HBC.US).
So, let’s start at the beginning and take a look at HSBC’s valuation in relation to the banks closest peers and the wider sector. Currently, HSBC trades at a historic P/E of 14.8, which is slightly below the banks sector average of 16.6.
Having said that, HSBC looks expensive when compared to its closest sector peers, Standard Chartered and Barclays. Indeed, Standard Chartered and Barclays trade at a historic P/E of 10.5 and 8 respectively.
Nonetheless, it would appear that HSBC deserves this premium over its peers, as the company’s performance has been one of the best in the banking sector during the past five years. In particular, HSBC’s pre-tax profit has more than doubled since 2008.
What’s more, City analysts expect the bank’s earnings per share to expand 28% this financial year, which gives the company a PEG ratio of 0.5, indicating that HSBC offers growth at a reasonable price.
In comparison, City analysts are have predicted that the earnings per share of Standard Chartered and Barclays will slide 5% and 25% respectively for this financial year. Additionally, both Standard Chartered and Barclays have been unable to achieve pre-tax profit growth similar to that of HSBC during the past five years.
Furthermore, HSBC also stands out on the dividend front. Indeed, HSBC currently offers a dividend yield of 4.1%, covered one-and-a-half times by earnings. What’s more, City analysts have pencilled in dividend payout growth of 25% for the next two years, indicating that HSBC will offer investors a dividend yield of just under 5% during 2014.
That said, City predictions currently indicate that Barclays’ dividend payout will expand 77% from 2012 during the next two years. This implies that the company will offer a dividend yield of 4.1% during 2014.
Over the same period, Standard Chartered’s dividend is expected to expand 14%.
HSBC is one of the biggest banks in the world so the company deserves a premium over its peers. That said, at current levels the bank looks cheap in comparison its wider sector.
All in all, I feel that this discount is unwarranted based on the banks performance during the past five years, projected growth for the next two years and projected dividend growth. So overall, I believe that HSBC is a much stronger share than its peers.
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> Rupert owns shares in Standard Chartered. The Motley Fool owns shares in Standard Chartered.