We are downgrading our long-term recommendation on HSBC Holdings (HBC) ADRs to Underperform to reflect the penalty to be paid to settle money-laundering charges and its credit ratings downgrade by Fitch. Moreover, the company's third quarter net income was significantly down from the year-ago period and included additional provision for various investigations faced by it.
Quarterly core results were adversely impacted by higher operating expenses. There are also concerns related to the impact of the Euro-zone crisis, weak revenue growth in its mature markets and regulatory restrictions.
Our six-month target price of $48.00 per ADR equates to about 11.1x the Zacks Consensus Estimate for 2012. This target price implies an expected negative total return of 10.0% over that period. This is consistent with our long-term Underperform recommendation on the ADRs.
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