We issued an updated research report on Washington Federal, Inc.WAFD on Dec 19, 2018. Continuously increasing expenses remain a major concern for the company as it might hurt profitability. Further, its exposure to risky loan portfolios might hamper financials.
In fact, the company's earnings estimates for fiscal 2018 have been revised 2.7% downward over the past 60 days, reflecting that analysts are not optimistic regarding its earnings growth potential. Thus, the stock currently carries a Zacks Rank #4 (Sell).
Probably because of these drawbacks, the company's shares have lost 27.8% over the past year compared with the industry 's decline of 25%.
Looking at its fundamentals, over the last five fiscal years (2014-2018), expenses have risen at a CAGR of 6.7%, mainly due to higher compensation costs and information technology expenses. In fact, expenses are likely to continue increasing, owing to the bank's branch acquisition strategy and technology upgrades. Thus, elevated costs might hurt bottom-line growth in the near term to quite an extent.
Moreover, Washington Federal has considerable exposure to risky loan portfolios. As of Sep 30, 2018, 67% of the company's loan originations comprised commercial loans. Though Washington Federal has been reducing its exposure to these loan portfolios, we do not anticipate a significant improvement any time soon.
Nevertheless, the company still remains well positioned to benefit from growth in loans, rising rate scenario and improving credit quality. Moreover, its earnings strength and strong balance sheet position, along with its trend of returning capital to shareholders, will continue to boost investors' confidence in the stock.
Stocks to Consider
On Deck Capital currently sports a Zacks Rank #1 (Strong Buy). Over the past 60 days, it has witnessed an upward earnings estimate revision of 22.7% for the current year. Additionally, the stock has gained 40.7% in the past two years.
Credit Acceptance's earnings estimates for the current year have been revised 3.4% upward over the past 60 days. Its shares have surged 70.2% in the past two years. The stock currently sports a Zacks Rank of 1. You can see the complete list of today's Zacks #1 Rank stocks here .
Over the past 60 days, Ally Financial's earnings estimates for the current year have been revised 4.2% upward. The company's shares have increased 14.4% in the past two years. The stock currently has a Zacks Rank #2 (Buy).
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