Washington Federal Misses Ests
Washington Federal, Inc. (WFSL - Analyst Report) reported 3Q08 operating earnings of $0.34 per share, four cents short of our estimate.
The miss stemmed from a high increase in the provision expense, though the expansion in the interest margin was impressive, owing to WFSL’s liability sensitivity. Credit quality significantly worsened during the quarter and we anticipate the deterioration in the credit quality to continue, in the coming quarters, resulting in higher credit costs, which will be partially offset by the growth in the interest rate spread. After reviewing the results, we are maintaining our Hold recommendation on the shares.
WFSL currently trades at 12.2 times the consensus forward estimate (versus 11.6 times at the time of our last report), a 17% discount to the peer group median (versus 18% premium at that time). On a price-to-book basis, the shares trade at a 14% discount to the peer median (versus 365% premium earlier).
Relative pricing continues to look expensive on a P/E-to-growth (PEG) basis, using the consensus forward estimate and the consensus long-term growth rate. WFSL’s PEG ratio is now 1.59, a 10% premium to the 1.45 median for the peer group (versus 121% premium previously). However, on a price-to-book basis the 14% discount looks attractive given a ROE 28% above median (the ROE-adjusted P/B is now 29% below median).