On Oct 3, 2013, we downgraded our long-term recommendation on Washington Federal Inc. (WAFD) to Neutral from Outperform. This was based on the company’s significant exposure to a still volatile real estate market. However, Washington Federal’s strong fiscal third-quarter earnings as well as its consistent organic and inorganic growth were the positives.
Why Downgraded to Neutral?
A large part of Washington Federal’s loan portfolio comprises high quality single-family residential loans, which has a substantial percentage of non-acquired and non-accrual loans. Though the company has been lowering its exposure to these loan portfolios, we do not expect significant improvement anytime soon.
Moreover, despite Washington Federal benefiting from deposit re-pricing due to lower deposit rates, any appreciation in interest rates will adversely affect its efforts to strengthen net interest margin through deposit re-pricing.
Further, the Zacks Consensus Estimate for fiscal 2013 decreased by a penny to $1.38 per share over the last 60 days. For fiscal 2014, the Zacks Consensus Estimate remained stable at $1.48 per share over the same time frame. Hence, Washington Federal currently carries a Zacks Rank #3 (Hold).
However, we view Washington Federal as an asset for yield-seeking investors, given the company’s regular dividend payments and consistent share repurchase programs. Moreover, the company’s credit quality continues to improve with the contraction of nonperforming assets and net charge-offs. Management also expects credit costs to decline further.
Other Stocks to Consider
Some financial stocks worth a look include Meta Financial Group, Inc. (CASH), Cape Bancorp, Inc. (CBNJ) and 1st Century Bancshares, Inc. (FCTY). All of these carry a Zacks Rank #1 (Strong Buy).
Read the Full Research Report on CASH
Read the Full Research Report on CBNJ
Read the Full Research Report on FCTY
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