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Washington Federal (WAFD) Up 1.3% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Washington Federal (WAFD). Shares have added about 1.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Washington Federal due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Washington Federal's Q2 Earnings Beat on Solid Revenues

Washington Federal’s second-quarter fiscal 2021 (ended Mar 31) earnings of 56 cents per share surpassed the Zacks Consensus Estimate of 49 cents. Further, the figure reflects a year-over-year rise of 19.1%.

Results primarily benefited from an increase in revenues. Further, the company’s balance-sheet position remained strong during the quarter. However, elevated expenses and lower other income were undermining factors.

Net income was $45 million, up 25% from the prior year.

Revenues Climb, Expenses Up

Net revenues were $138.5 million, up 3.5% from the year-ago quarter. The top-line figure beat the Zacks Consensus Estimate of $137.2 million.

NII was $124 million, up 5.5% from the year-earlier period. NIM was 2.75%, down 35 basis points (bps) year over year.

Total other income of $14.5 million declined 10.5% from the prior-year quarter. This decrease was due to the significant fall in loan fee income and lower deposit fee income.

Other expenses amounted to $81.7 million, up 2.9% year over year. Higher compensation and benefits, and FDIC insurance premiums mainly led to this upswing.

The company’s efficiency ratio was 59.02%, marginally down from the 59.34% recorded a year ago. A fall in efficiency ratio indicates profitability.

At the end of the fiscal second quarter, return on average common equity was 8.17%, up from the 7.19% witnessed at the end of the year-earlier quarter. Return on average assets was 0.93%, up from 0.89% at the end of the year-ago quarter.

Loans and Deposit Rise

As of Mar 31, 2021, net loans receivables amounted to $13 billion, up 1.6% from the $12.8 billion recorded on Sep 30, 2020. Also, total customer deposits were $14.8 billion, up 7.5% since Sep 30, 2020.

Credit Quality Improves

As of Mar 31, 2020, the ratio of non-performing assets to total assets was 0.25%, down from 0.35% on Dec 31, 2020. Allowance for credit losses (including reserve for unfunded commitments) were 1.30% of gross loans outstanding, down from the 1.33% recorded on Sep 30, 2020.

During the reported quarter, the company recorded no provision for credit losses as against the provision release of the $8.2 million recorded in the prior-year quarter.

Share Repurchase Update

During the reported quarter, Washington Federal repurchased 2.8 million shares at an average price of $31.53 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 9.57% due to these changes.

VGM Scores

Currently, Washington Federal has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Washington Federal has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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