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Washington Federal (WAFD) Down 3% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Washington Federal (WAFD). Shares have lost about 3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Washington Federal due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Washington Federal Q1 Earnings Lag, Revenues Beat

Washington Federal’s first-quarter fiscal 2020 (ended Dec 31) adjusted earnings came in at 58 cents per share, missing the Zacks Consensus Estimate of 60 cents. Results exclude the net positive impact of two significant non-recurring items.

Including such items, net income was $65.7 million or 84 cents per share, up from $52.9 million or 65 cents per share in the year-ago quarter.

Results reflect increase in revenues and improving credit quality. However, higher expenses, decline in loan and deposit balances, and shrinking margins were the undermining factors.

Revenues Up, Expenses Rise

Net revenues came in at $166.1 million, up 20.2% from the year-ago quarter. The figure surpassed the Zacks Consensus Estimate of $135.3 million by a wide margin. 

Net interest income was $119.7 million, marginally up from the year-ago quarter. However, net interest margin declined 6 basis points (bps) to 3.15%.

Total other income of $46.4 million increased considerably from the prior-year quarter. This upside was mainly driven by increase in other income and loan fee income.

Operating expenses were up 15.3% year over year to $82.6 million. Higher compensation and benefits, occupancy, product delivery and information technology expenses led to this rise.

The company’s adjusted efficiency ratio was 57.05% up from 51.88% recorded a year ago. A rise in efficiency ratio indicates deterioration in profitability.

At the end of the fiscal first quarter, return on average common equity was 12.89%, up from 10.64% witnessed at the end of the prior-year quarter. Return on average assets was 1.60%, up from 1.32%.

As of Dec 31, 2019, both net loans receivables and customer deposit accounts amounted to $11.9 billion, marginally down from the prior quarter.

Credit Quality Improves

As of Dec 31, 2019, the ratio of non-performing assets to total assets was 0.24%, down 3 bps sequentially. Furthermore, release for loan losses increased to $1 million from $0.5 million recorded a year ago.

Additionally, allowance for loan losses and reserve for unfunded commitments were 1.04% of gross loans outstanding, unchanged from the figure recorded in the prior quarter.

Share Repurchase Update

During the quarter, Washington Federal repurchased 0.9 million shares at weighted average price of $36.62 per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Washington Federal has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Washington Federal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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