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Washington Federal (WAFD) Gains From Loan Demand, Costs Rise

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Washington Federal, Inc.’s (WAFD - Free Report) efforts to diversify revenues and consistent rise in loan demand are expected to keep supporting financials. Driven by a solid liquidity position, the company is expected to continue its efficient capital deployment activities, thus enhancing shareholder value.

However, increasing expenses (owing to WAFD’s investments in technology upgrades) make us apprehensive about its prospects, as this will likely hamper the bottom line to some extent.

WAFD’s revenues witnessed a CAGR of 3.5% over the last six fiscal years (2016-2021). The upswing was largely driven by improving net loan balances, which recorded a CAGR of 6.9% over the same period. Aided by the constant rise in loan demand, the company’s top line is expected to continue to improve in the quarters ahead.

Washington Federal has a robust balance sheet. As of Mar 31, 2022, the company had total debt of $1.72 billion and cash and cash equivalents worth $1.95 billion. Given the decent earnings strength, the company is expected to continue meeting debt obligations in the near term, even if the economic situation worsens.

Since fiscal 2011, WAFD has been increasing its quarterly dividend on a regular basis, with the latest hike announced in January 2022. The bank also has a share repurchase plan in place. As of Mar 31, 2022, it had 3.73 million shares remaining under the buyback authorization. Given its earnings strength, it is expected to sustain efficient capital deployments.

Over the past year, shares of the company have rallied 0.3% against the industry’s decline of 11.4%.

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However, persistently increasing expenses, mainly due to higher compensation and information technology costs, are expected to hurt the bottom line. While WaFd Bank’s conversion to a state charter will likely save $0.5 million in expenses annually, overall costs are expected to remain high in the quarters ahead due to the company’s branch acquisition strategy and technology upgrades.

The Zacks Consensus Estimate for the company’s fiscal 2022 earnings has remained unchanged over the past 30 days. WAFD currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

A couple of better-ranked stocks from banking space are East West Bancorp (EWBC - Free Report) and SVB Financial Group (SIVB - Free Report) . At present, EWBC carries a Zacks Rank #2 (Buy) and SIVB sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past six months, shares of East West Bancorp have lost 5.1%, while that of SVB Financial have declined 30.3%.

Over the past 60 days, the Zacks Consensus Estimate for East West Bancorp’s current-year earnings has been revised 5.6% upward, while the same for SVB Financial has moved 13.2% north.

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