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Washington Federal (WAFD) Up 2.9% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Washington Federal, Inc.WAFD . Shares have added nearly 2.9% in that time frame, underperforming the market.

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

Washington Federal Q1 Earnings Beat on Lower Expenses

Washington Federal reported first-quarter fiscal 2017 (ended Dec 31) earnings of $0.46 per share, beating the Zacks Consensus Estimate by a penny. The number also represents a year-over-year increase of 21.1%.

Growth in other income, nil provisions, fall in operating expenses were partially offset by decline in net interest income. Further, profitability ratios reflected strength, while credit quality continued to deteriorate.

Washington Federal's net income grew 17.5% year over year to $41.2 million.

Improved Other Income, Lower Expenses Support Results

Net revenue declined 2.1% year over year to $115.0 million. Also, the figure lagged the Zacks Consensus Estimate of $117.1 million.

Net interest income was $103.2 million, down 3.5% from the year-ago quarter. The primary reason behind the decline was lower yield on earning assets. Also, net interest margin fell 16 basis points (bps) year over year to 3.02%.

Other income grew 11.9% year over year to $11.9 million. The rise was primarily driven by an increase in other income and gain on sale of investments, partially offset by a fall in loan and deposit fee incomes.

Operating expenses declined 15.8% from the prior-year quarter to $54.3 million. The fall was due to lower product delivery costs, occupancy expenses, information technology and other expenses, partly offset by a rise in compensation and benefit and FDIC insurance premiums.

The company's efficiency ratio came in at 47.23%, down from 54.90% a year ago. A fall in efficiency ratio indicates an improvement in profitability.

As of Dec 31, 2016, return on average common equity was 8.31%, up from 7.14% at the end of the prior-year quarter. Return on average assets came in at 1.11% compared with 0.96% in the year-ago quarter.

Credit Quality Deteriorate

As of Dec 31, 2016, the ratio of non-performing assets to total assets was 0.56%, compared with 0.48% as of Sep 30, 2016. Further, the allowance for loan losses and reserve for unfunded commitments was 1.09% of gross loans outstanding, up 2 bps sequentially. The rise reflects the continued shift in the mix of the loan portfolio to include a greater proportion of commercial loans outstanding that generally require higher reserves.

Similar to the prior-year quarter, provision for loan losses was nil during the reported quarter.

Share Repurchase

Washington Federal bought back 0.8 million shares at a weighted average price of $26.90 per share in the reported quarter.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend for fresh estimates. There has been one downward revision for the current quarter.

Washington Federal, Inc. Price and Consensus

Washington Federal, Inc. Price and Consensus | Washington Federal, Inc. Quote

VGM Scores

At this time, Washington Federal's stock has a subpar score of 'D' on both growth and momentum front. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

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

The company's stock is suitable solely for value based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #2 (Buy). We are looking for an above average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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