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On Tuesday, Keefe, Bruyette & Woods made a significant adjustment to the price target for Washington Federal (NASDAQ:WAFD), reducing it to $34.00 from the previous $42.00 while retaining a Market Perform rating on the stock. The revision follows Washington Federal's decision to exit the Single-Family Residential (SFR) origination business, which is expected to sharpen the company's focus on commercial and small business sectors.
The firm's analyst cited a core Net Interest Margin (NIM) miss as a key factor driving estimates materially lower. The exit from the SFR business is also anticipated to cut non-core operation costs, including an 8% workforce reduction. Despite these challenges, InvestingPro data shows the company has maintained dividend payments for 42 consecutive years and currently offers a 3.44% dividend yield, demonstrating long-term financial stability. This portfolio adjustment, involving nearly 40% of the company's loans, is seen as a crucial step for Washington Federal as it aims to demonstrate growth and enhance profitability.
Despite the reduction in operating margin by 17 basis points quarter over quarter, the analyst believes that the downside risk for Washington Federal shares is likely limited around the tangible book value (TBV), which currently trades at 1.1 times. The price target cut reflects concerns over the bank's ability to grow while improving its NIM.
The Keefe, Bruyette & Woods analyst further expressed that investor confidence might remain tentative until there is clearer evidence of Washington Federal's growth trajectory and NIM improvement. The company's strategic shift away from the SFR origination business is seen as a move to streamline operations and focus on core areas that could drive future profitability.
In other recent news, Washington Federal (WaFd) has been making significant strides in its financial performance. The company reported operational earnings per share (EPS) of $0.76 for the quarter ending September 30, 2024, surpassing analysts' expected $0.51. Additionally, its pre-provision net revenue (PPNR) of $85.6 million beat expectations by 18%.
WaFd also completed the sale of $3.2 billion of Loan Balance Challenge (LBC) loans, a move aimed at enhancing the company's balance sheet flexibility. This strategic decision has led to perceptions of WaFd's balance sheet as more thrift-like.
On the analyst front, Piper Sandler revised its outlook on WaFd, reducing the stock's price target to $35, citing expectations of a smaller balance sheet, reduced fee income, and increased non-interest expense. However, DA Davidson and Stephens raised their price targets to $39 and $36 respectively, while maintaining their ratings.
These developments highlight the dynamic nature of WaFd's financial landscape. Amid these changes, the company continues to maintain a strong dividend payment record, with a current yield of 3.35%.
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