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SMFG vs. HSBC: Which Stock Is the Better Value Option?

Zacks Equity Research

Investors interested in stocks from the Banks - Foreign sector have probably already heard of Sumitomo Mitsui (SMFG) and HSBC (HSBC). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.

Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Sumitomo Mitsui has a Zacks Rank of #2 (Buy), while HSBC has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that SMFG is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.

Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.

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Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

SMFG currently has a forward P/E ratio of 7.28, while HSBC has a forward P/E of 10.98. We also note that SMFG has a PEG ratio of 2.72. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. HSBC currently has a PEG ratio of 2.85.

Another notable valuation metric for SMFG is its P/B ratio of 0.46. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, HSBC has a P/B of 0.82.

These are just a few of the metrics contributing to SMFG's Value grade of A and HSBC's Value grade of D.

SMFG is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that SMFG is likely the superior value option right now.


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Sumitomo Mitsui Financial Group Inc (SMFG) : Free Stock Analysis Report
 
HSBC Holdings plc (HSBC) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.