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Why Is Washington Federal (WAFD) Up 7.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Washington Federal (WAFD). Shares have added about 7.3% 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 its most recent earnings report in order to get a better handle on the important drivers.

Washington Federal Q3 Earnings Beat as Revenues Rise

Washington Federal’s third-quarter fiscal 2021 (ended Jun 30) earnings of 61 cents per share surpassed the Zacks Consensus Estimate of 52 cents. The figure reflects a year-over-year rise of 32.6%.

Results primarily gained from an increase in revenues, provision benefits and rise in loan balance. The company’s balance-sheet position remained strong during the quarter. However, elevated expenses and lower other income were the headwinds.

Net income was $47.4 million, up 36.1% from the prior year.

Revenues & Expenses Up

Net revenues were $141.8 million, up 8.5% from the year-ago quarter. The top line beat the Zacks Consensus Estimate of $137.1 million.

NII was $128.6 million, up 9.6% from the year-earlier period. Net interest margin was 2.82%, in line with the prior-year quarter.

Total other income of $13.2 million declined marginally from the prior-year quarter. This decrease was due to lower other income.

Other expenses amounted to $83.6 million, up 11% year over year. Higher compensation and benefits, and FDIC insurance premiums mainly led to this upswing.

The company’s efficiency ratio was 58.98%, up from 57.65% recorded a year ago. A rise in efficiency ratio indicates lower profitability.

At the end of the fiscal third quarter, return on average common equity was 8.71%, up from the 7.01% witnessed at the end of the year-earlier quarter. Return on average assets was 0.97%, up from 0.78%.

Loans and Deposit Balances Rise

As of Jun 30, 2021, net loans receivables amounted to $13.5 billion, up from the $12.8 billion recorded on Sep 30, 2020. Also, total customer deposits were $15.2 billion, up from $13.8 billion as of Sep 30, 2020.

Credit Quality Improves

As of Jun 30, 2021, the ratio of non-performing assets to total assets was 0.23%, down from 0.25% on Mar 31, 2021. Allowance for credit losses (including reserve for unfunded commitments) was 1.26% of gross loans outstanding, down from the 1.33% recorded on Sep 30, 2020.

During the reported quarter, the company recorded provision release of $2 million against provision for credit losses of $10.8 million in the prior-year quarter.

Share Repurchase Update

In the reported quarter, Washington Federal repurchased 3.6 million shares at an average price of $32.69 per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 8.62% due to these changes.

VGM Scores

At this time, Washington Federal has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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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