Gold prices bounce off 3-week lows; demand likely longer term
Goldman Sachs has adjusted its outlook on Hong Kong Exchanges (388:HK) (OTC: HKXCY), reducing the stock's price target to HK$320.00 from the previous HK$345.00. Despite the change, the firm maintains a Conviction Buy rating on the shares.
The adjustment follows a period where Hong Kong Exchanges reported earnings that, excluding higher-than-expected investment income, fell short of expectations by 6% due to a general decline in revenue. Goldman Sachs has revised its earnings per share (EPS) estimates for the fiscal years 2024, 2025, and 2026 downward by 4%, 7%, and 8%, respectively.
The analysis by Goldman Sachs suggests that investors should now focus on the potential benefits of cash market liquidity improvement reforms, the upside of derivative volumes, and the trajectory of investment income.
The firm notes that the stock is currently trading at the lower end of its historical valuation range, with a 12-month forward price-to-earnings (P/E) ratio of 25 times, which is close to historical lows.
Goldman Sachs believes that the current stock price reflects the subdued activity in the Hong Kong cash market, which is considered the primary driver of the exchange's performance. The firm's stance indicates that the market may not be anticipating a recovery in the near term. This perspective has led to the revised 12-month target price of HK$320 for the Hong Kong Exchanges stock.
InvestingPro Insights
As investors consider Goldman Sachs' revised outlook on Hong Kong Exchanges, it's beneficial to look at some key metrics and insights from InvestingPro. The company currently holds a market capitalization of $37.61 billion and trades at a P/E ratio of 24.82, which is considered high relative to its near-term earnings growth. This aligns with the analysis that the stock is trading at the lower end of its historical valuation range. Additionally, Hong Kong Exchanges has been a consistent player in the Capital Markets industry, maintaining dividend payments for 25 consecutive years, demonstrating a commitment to shareholder returns, even as its price has seen a significant decline over the last three months.
InvestingPro Tips highlight that while analysts have revised their earnings expectations downwards for the upcoming period, the company's cash flows are robust enough to cover interest payments, and it is expected to remain profitable this year. These insights, along with the fact that Hong Kong Exchanges is a prominent player in its industry, provide a nuanced perspective for investors considering the stock's future performance.
For those looking to dive deeper into Hong Kong Exchanges' financial health and future prospects, InvestingPro offers additional tips and a fair value estimation of $37.96, suggesting potential undervaluation at its current price. To explore these insights further, investors can visit https://www.investing.com/pro/HKXCY, where they can find a comprehensive list of 9 additional InvestingPro Tips to aid in their investment decision-making process.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.