Washington Federal, Inc. ( WAFD Quick Quote WAFD - Free Report) is well positioned for growth backed by its robust balance sheet and improving loan balances. However, lower interest rates and rising operating expenses remain near-term woes.
Washington Federal’s organic growth remains impressive. The company’s revenues have witnessed a compound annual growth rate (CAGR) of 3.7% over the last six fiscal years (2015-2020), largely driven by an improving net loan balance. Given the anticipations of a decent rise in loan demand, the company’s top line is likely to improve further.
The company’s balance-sheet position is solid. As of Dec 31, 2020, the bank had a total debt of $2.6 billion, and cash and cash equivalents worth $1.8 billion. Besides, Washington Federal's times interest earned of 5.4 at the end of first-quarter fiscal 2021 has been steady at this range for the last several quarters. Thus, given the decent earnings strength, the company will be able to continue meeting debt obligations, even if the economic situation worsens.
Further, shares of this Zacks Rank #2 (Buy) company have rallied 19.7% over the past three months, underperforming the
industry’s gain of 21.2%. Also, analysts seem to have an optimistic stance for the stock. The Zacks Consensus Estimate for earnings has moved 1% and 1.1% upward for fiscal 2021 and fiscal 2022, respectively, over the past 30 days.
However, escalating operating expenses is a cause of concern for Washington Federal. In addition, the company’s net interest margin growth is likely to remain muted in the near term due to near-zero interest rates. Nonetheless, a strong liquidity position is expected to keep supporting profitability and the company will likely be able to sustain efficient capital deployments.
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