Analyzing HSBC (NYSE:HSBC) and Wells Fargo & Company (NYSE:WFC)

HSBC (NYSE:HSBC) and Wells Fargo & Company (NYSE:WFC) are both large-cap finance companies, but which is the superior investment? We will contrast the two businesses based on the strength of their earnings, institutional ownership, risk, analyst recommendations, profitability, valuation and dividends.

Analyst Recommendations

This is a summary of recent recommendations and price targets for HSBC and Wells Fargo & Company, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
HSBC	2	11	3	0	2.06
Wells Fargo & Company	0	8	15	2	2.76

HSBC currently has a consensus price target of $97.00, suggesting a potential upside of 2.61%. Wells Fargo & Company has a consensus price target of $98.08, suggesting a potential upside of 18.51%. Given Wells Fargo & Company’s stronger consensus rating and higher possible upside, analysts plainly believe Wells Fargo & Company is more favorable than HSBC.

Dividends

HSBC pays an annual dividend of $1.98 per share and has a dividend yield of 2.1%. Wells Fargo & Company pays an annual dividend of $2.00 per share and has a dividend yield of 2.4%. HSBC pays out 28.1% of its earnings in the form of a dividend. Wells Fargo & Company pays out 28.2% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Wells Fargo & Company has raised its dividend for 4 consecutive years. Wells Fargo & Company is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares HSBC and Wells Fargo & Company’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
HSBC	18.19%	13.80%	0.83%
Wells Fargo & Company	17.64%	14.05%	1.04%

Volatility & Risk

HSBC has a beta of 0.58, suggesting that its stock price is 42% less volatile than the S&P 500. Comparatively, Wells Fargo & Company has a beta of 0.96, suggesting that its stock price is 4% less volatile than the S&P 500.

Institutional & Insider Ownership

1.5% of HSBC shares are owned by institutional investors. Comparatively, 75.9% of Wells Fargo & Company shares are owned by institutional investors. 0.0% of HSBC shares are owned by insiders. Comparatively, 0.1% of Wells Fargo & Company shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Earnings and Valuation

This table compares HSBC and Wells Fargo & Company”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
HSBC	$131.35 billion	2.47	$22.29 billion	$7.05	13.41
Wells Fargo & Company	$123.53 billion	2.03	$21.34 billion	$7.09	11.67

HSBC has higher revenue and earnings than Wells Fargo & Company. Wells Fargo & Company is trading at a lower price-to-earnings ratio than HSBC, indicating that it is currently the more affordable of the two stocks.

Summary

Wells Fargo & Company beats HSBC on 12 of the 18 factors compared between the two stocks.

About HSBC

HSBC Holdings plc provides banking and financial services worldwide. The company operates through Wealth and Personal Banking, Commercial Banking, and Global Banking and Markets segments. The Wealth and Personal Banking segment offers retail banking and wealth products, including current and savings accounts, mortgages and personal loans, credit and debit cards, and local and international payment services; and wealth management services comprising insurance and investment products, global asset management services, investment management, and private wealth solutions. This segment serves personal banking and high net worth individuals. The Commercial Banking segment provides credit and lending, treasury management, payment, cash management, commercial insurance, and investment services; commercial cards; international trade and receivables finance services; foreign exchange products; capital raising services on debt and equity markets; and advisory services. It serves small and medium sized enterprises, mid-market enterprises, and corporates. The Global Banking and Markets segment offers financing, advisory, and transaction services; and credit, rates, foreign exchange, equities, money markets, and securities services; and engages in principal investment activities. It serves government, corporate and institutional clients, and private investors. HSBC Holdings plc was founded in 1865 and is headquartered in London, the United Kingdom.

About Wells Fargo & Company

Wells Fargo & Co. is a diversified and community-based financial services company, which engages in the provision of banking, insurance, investments, mortgage, and consumer and commercial finance products and services. It operates through the following segments: Consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking, and Wealth and Investment Management. The Consumer Banking and Lending segment offers consumer and small business banking, home lending, credit cards, auto, and personal lending. The Commercial Banking segment provides banking and credit products across industry sectors and municipalities, secured lending and lease products, and treasury management. The Corporate and Investment Banking segment is composed of corporate banking, investment banking, treasury management, commercial real estate lending and servicing, and equity and fixed income solutions, as well as sales, trading, and research capabilities. The Wealth and Investment Management segment refers to personalized wealth management, brokerage, financial planning, lending, private banking, trust, and fiduciary products and services. The company was founded by Henry Wells and William G. Fargo on March 18, 1852 and is headquartered in San Francisco, CA.