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Washington Federal (WAFD) Up 5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Washington Federal (WAFD). Shares have added about 5% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Washington Federal Q1 Earnings Beat, Revenues Down Y/Y

Washington Federal’s first-quarter fiscal 2021 (ended Dec 31) earnings of 51 cents per share surpassed the Zacks Consensus Estimate of 42 cents. However, the figure reflects a year-over-year decline of 40.7%.

A decline in expenses and marginally higher net interest income (NII) primarily aided the results. Also, the balance sheet position remained strong in the quarter. However, lower other income was an undermining factor. Worsening credit quality was another negative for the company.

Net income was $39 million, down from $67.9 million recorded a year ago.

Revenues & Expenses Decline

Net revenues were $134.4 million, down 19.1% from the year-ago quarter. The top-line figure surpassed the Zacks Consensus Estimate of $127.6 million.

NII was $120.5 million, up marginally from the year-earlier period. NIM was 2.75%, down 40 basis points (bps) year over year.

Total other income of $13.9 million declined 70.1% from the prior-year quarter. The decline resulted from significantly lower other income and a fall in deposit fee income.

Expenses amounted to $81.4 million, down 1.5% year over year. Lower occupancy costs along with a decline in information technology and other expenses led to the fall.

The company’s efficiency ratio was 60.58%, up from 57.05% recorded a year ago. A rise in efficiency ratio indicates deterioration in profitability.

At the end of the fiscal first quarter, return on average common equity was 7.65%, down from 13.46% witnessed at the end of the year-ago quarter. Return on average assets was 0.83%, down from 1.66% at the end of the year-ago quarter.

Balance Sheet Strong

As of Dec 31, 2020, net loans receivables amounted to $12.9 billion, up marginally from $12.8 billion recorded on Sep 30, 2020. Customer deposits were $14.2 billion, up 2.8% from the previous-quarter end.

Credit Quality Deteriorates

As of Dec 31, 2020, the ratio of non-performing assets to total assets was 0.35%, up from 0.24% on Sep 30, 2020. Allowance for loan losses and reserve for unfunded commitments were 1.33% of gross loans outstanding, up from 1.31% recorded on Dec 31, 2019.

In the reported quarter, the company recorded provision for credit losses of $3 million against provision release of $3.8 million recorded in the prior-year quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, Washington Federal has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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 C. 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 indicates a downward shift. 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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