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 - Analyst Report) 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."

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