On Oct 3, 2013, we downgraded our long-term recommendation on
Washington Federal Inc.
) to Neutral from Outperform. This was based on the company's
significant exposure to a still volatile real estate market.
However, Washington Federal's strong fiscal third-quarter
earnings as well as its consistent organic and inorganic growth
were the positives.
Why Downgraded to Neutral?
A large part of Washington Federal's loan portfolio comprises
high quality single-family residential loans, which has a
substantial percentage of non-acquired and non-accrual loans.
Though the company has been lowering its exposure to these loan
portfolios, we do not expect significant improvement anytime
Moreover, despite Washington Federal benefiting from deposit
re-pricing due to lower deposit rates, any appreciation in
interest rates will adversely affect its efforts to strengthen
net interest margin through deposit re-pricing.
Further, the Zacks Consensus Estimate for fiscal 2013 decreased
by a penny to $1.38 per share over the last 60 days. For fiscal
2014, the Zacks Consensus Estimate remained stable at $1.48 per
share over the same time frame. Hence, Washington Federal
currently carries a Zacks Rank #3 (Hold).
However, we view Washington Federal as an asset for yield-seeking
investors, given the company's regular dividend payments and
consistent share repurchase programs. Moreover, the company's
credit quality continues to improve with the contraction of
nonperforming assets and net charge-offs. Management also expects
credit costs to decline further.
Other Stocks to Consider
Some financial stocks worth a look include
Meta Financial Group, Inc.
Cape Bancorp, Inc.
1st Century Bancshares, Inc.
). All of these carry a Zacks Rank #1 (Strong Buy).
META FINL GRP (CASH): Free Stock Analysis
CAPE BANCORP (CBNJ): Free Stock Analysis
1ST CENTURY BCS (FCTY): Free Stock Analysis
WASH FEDL INC (WAFD): Free Stock Analysis
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