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On Tuesday, Piper Sandler adjusted its outlook on Washington Federal (NASDAQ:WAFD), reducing the bank's price target from $37.00 to $31.00, while maintaining a Neutral stock rating. The revision reflects a recalibration of expectations following Washington Federal's strategic exit from single-family residential (SFR) lending and a weaker-than-anticipated net interest margin (NIM). Currently trading at $30.25, the bank, with a market capitalization of $2.46 billion, is showing signs of being undervalued according to InvestingPro analysis.
The firm's analyst, Matthew Clark, revised downward the earnings per share (EPS) estimates for the fiscal years 2025 and 2026 to $2.48 and $2.95 respectively. This change is down from the previous estimates of $2.84 and $3.20. The lower forecasts are attributed to a combination of factors including decreased net interest income (NII), a contraction in NIM, and increased loan loss provisions (LLPs) as the bank shifts its focus towards commercial lending. These negative impacts are slightly mitigated by an improvement in non-interest expense (NIE). InvestingPro data reveals that two analysts have recently revised their earnings downward for the upcoming period, though the company maintains a solid dividend track record with 42 consecutive years of payments.
The new price target of $31.00 represents a multiple of 10.5 times the estimated 2026 EPS, a decrease from the prior multiple of 11.5. This adjustment aligns with the broader market's lower valuation multiples. Piper Sandler's valuation also factors in a discount relative to Washington Federal's peers, who are currently valued at an average multiple of 11.5 times EPS. This discount is justified by Washington Federal's comparatively lower profitability and the ongoing transformation of its balance sheet, which historically resembled that of a thrift institution. The stock currently trades at a P/E ratio of 17.98, with InvestingPro analysis indicating potential upside based on its comprehensive Fair Value model. Discover more detailed valuation insights and peer comparisons with an InvestingPro subscription.
Washington Federal's strategic shift away from SFR lending is part of its efforts to reshape its balance sheet and improve profitability. However, the bank's transition is now viewed as a "Show Me Story," indicating that investors may adopt a wait-and-see approach to assess the effectiveness of these changes.
The adjustments to Washington Federal's price target and earnings estimates come at a time when financial institutions are navigating a complex economic environment, with interest rates and market dynamics influencing profitability and strategic direction.
In other recent news, Washington Federal's strategic decision to exit Single-Family Residential (SFR) lending has led to significant adjustments in price targets and earnings forecasts by several analyst firms. Piper Sandler's Matthew Clark reduced the price target for the company to $31, citing a shift towards a commercial focus and anticipations of lower Net Interest Income (NII) and Net Interest Margin (NIM). The analyst also revised the earnings forecasts for fiscal years 2025 and 2026, lowering the estimated EPS to $2.48 for 2025 and $2.95 for 2026.
Keefe, Bruyette & Woods, on the other hand, adjusted the price target for Washington Federal to $34, following the company's decision to focus more on the commercial and small business sectors. The firm's analyst expressed that investor confidence might remain tentative until there is clearer evidence of the company's growth trajectory and NIM improvement.
Stephens maintained their Equal Weight rating on Washington Federal with a steady price target of $38. The firm pointed out some financial headwinds the company encountered, including a $5.4 million restructuring operating expense and a $3.9 million mark-to-market swap adjustment.
Lastly, Piper Sandler adjusted its outlook on Washington Federal again, reducing the stock's price target to $35, citing expectations of a smaller balance sheet, reduced fee income, and increased non-interest expense. These recent developments provide investors with an updated view of Washington Federal's financial landscape.
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