Is WaMu the Next Fault-Line?

In the Battle Royale that has become Wall Street and its largest financial institutions, while Lehman Brothers (LEH) stays on the canvas for the time being, Washington Mutual (WM) looks to be the next contestant in line to step up and take a pummeling.  WaMu shares hit a 17-year low Wednesday, and are down another 25% in the pre-markets.

Analysts have refrained from further downward estimate revisions in the past month ahead of September quarter, but we are keeping our eye on that for now.  WM's June quarter posted a dreadful -237% earnings surprise, and its current year-over-year growth estimate is nearly -500%.  If the company cannot make even the -91 per share the Zacks consensus expects, another major U.S. bank may wobble even more visibly.

Zacks senior financial institution analyst Eric Rothmann has kept a Sell rating on WM shares since November 2007, when they were trading around $20 per share.  In his latest research report [released July 30], he had this to say: "[W]e remain negative on the shares of the company and maintain a target price of $3.25 per share, resulting in a negative return of 17.2% over the next six months."

Read the full analyst report on WM