07-27-2017: Washington Federal Inc. (WAFD): Financial Institutions Profit from Rising Rates

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Recommendation

Washington Federal Inc.

Washington Federal Inc. (WAFD) is a large regional bank with many branches in the Western portion of the U.S. It is based in Seattle where it got its start but has been gradually acquiring branches throughout the Southwestern U.S. in a rather aggressive expansion. The stock pays a 1.8% dividend, and has benefitted along with many other S&L's and commercial banks from anticipated Federal Reserve rate hikes and a tightening cycle. However, it has not benefitted as much as others in share price appreciation and may be due to play "catch up."

It has a strong Zenith Index, strong fundamentals, good management. News on this company consists of a lot of PR articles full of "helpful hints" to customers on protecting security, savings, money management, etc.

The company seems very well managed as far as we can determine. Institutions are net sellers but Dimensional Fund Advisors (DFA) is prominent among them and it is acquiring. We regard this as positive because DFA's selection strategy is similar to ours.

Researchers are overwhelmingly positive but some of the main ones among them such as Standard & Poor's and Market Grader are not. Analysts are mixed, mostly neutral.

With all that said, it would appear the stock is going nowhere. Chart patterns would tend to support this and suggest that perhaps this might be a less risky stock to trade. However, our "channeling" analysis suggests otherwise and that this is primarily a "buy and hold" stock. The reason for the confusion is the blip upward caused by the interest rate tightening cycle and the possibility of further "blips" as the Federal Reserve makes further announcements. Banks benefit from rising rates because the spread between what the borrower pays and lender charges widens.

A housing boom in the U.S. is responsible for increasing loans being made and rising profits.



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Bond Issue

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Zenith Index

Under current market conditions, a Zenith Index Score of 1.20 or above is required for a positive rating on this factor. 1.21 -1.30 is considered acceptable, 1.30-1.40 is considered strong and
> 1.40 is considered exceptionally strong. Accounting statements in this section often contain mistakes, especially in earlier years' totals, but data is deemed sufficient for us to give a rating. More accurate financial statements follow in the next section.

Washington Federal, Inc. (WAFD)                           Exchange: Nasdaq
425 Pike Street
Seattle, WA 98101                Sector: Financial
United States                    Industry:Savings & Loans

Washington Federal, Inc. operates as the bank holding company for
Washington Federal, National Association that provides financial
services in the United States. The company accepts deposit products,
such as business and personal checking accounts, and term certificates
of deposit, as well as money market accounts and passbook savings
accounts. It also offers single-family residential, construction, land
development, multi-family residential, commercial and industrial,
consumer, and home equity loans. In addition, the company, through its
subsidiaries, is involved in the real estate investment and insurance
brokerage activities. As of September 30, 2016, it had 238 branches
located in Washington, Oregon, Idaho, Arizona, Utah, Nevada, New Mexico,
and Texas. Washington Federal, Inc. was founded in 1917 and is
headquartered in Seattle, Washington.

Last Trade:  33.40                           52-Week Range:  35.95 -  24.37
Employees: 1,806                             Avg.Volume:     398,152 Shares

Corporate Governance:
Pillar scores are Audit: 2; Board: 4; Shareholder Rights: 5; Compensation: 3.
         (A lower number means less governance risk.)

EPS:  1.88    Dividend Amount: $ 0.60          Yield:  1.80%
             Ex-Dividend Date: May 3, 2017     Payout Ratio:  30.32

Key Statistics:

    Trailing P/E:  17.86              Forward P/E (est.):  16.47
                                           Target Price:  34.75

Qrtly Stock Price Growth (yoy):  33.44%               Beta:   1.16
Qrtly S&P Index   Growth (yoy):   5.30%        Short Ratio:   6.85%
    Qrtly Revenue Growth (yoy):  14.02%         Shares Out:  89450000
   Qrtly Earnings Growth (yoy):   0.00%

          Book Value:  22.53                    Debt/Equity:   0.00%
    Price/Book Value:   1.49        Operating Profit Margin:  55.64%
         Price/Sales:   6.29                  Profit Margin:  35.90%
         Market Cap:   3,006,000,000       Return on Equity:   8.62%
    Enterprise Value:               0      Return on Assets:   1.15%

    Operating Cash Flow:        221,721
         Free Cash Flow:         14,995



Annual Income Statement:                          (All numbers in thousands)
  Period Ending                             09/30/201    9/30/2015   9/30/2014

  Total Revenue                                583,829     570,976     564,356
  Cost of Revenue                               52,485      51,054      58,524
  Gross Profit                                       0           0           0

Operating Expenses:
  Research & Development                             0           0           0
  Selling, General & Administrative            225,401     215,547     206,752
  Non-Recurring Expenses                             0           0           0
  Other Operating Expenses                      -6,250     -11,162     -15,401
  Total Operating Expenses                           0           0           0

Operating Income or Loss                             0           0           0

Income from Continuing Operations:
  Total Other Income/Expenses Net                    0           0           0
  Earnings Before Interest & Taxes             312,193     315,537     314,481
  Interest Expense                              64,059      66,018      69,553
  Income Before Taxes                          248,134     249,519     244,928
  Income Tax Expense                            84,085      89,203      87,564
  Minority Interest                                  0           0           0

Net Income from Continuing Op.s                164,049     160,316     157,364

Non-recurring Events:
  Discontinued Operations                            0           0           0
  Extraordinary Items                                0           0           0
  Effect of Accounting Changes                       0           0           0
  Other Items                                        0           0           0
  Net Income                                   164,049     160,316     157,364
  Preferred Stock & Other Adjustments                0           0           0

Net Income Avail to Common Shares              164,049     160,316     157,364



Annual Cash Flow Statement:                   (All numbers in thousands)
  Period Ending                         09/30/201      9/30/2015     9/30/2014

  Net Income                               164,049       160,316       157,364

Operating Activities:
  Depreciation                              22,988        21,217        17,347
  Adjustments to Net Income                -24,469       -28,184       -15,085
  Changes in Accounts Recv'bls               2,760        13,403        -4,614
  Changes in Liabilities                    71,071        -5,994        17,612
  Changes in Investories                         0             0             0
  Changes in other Oper'g Acts             -14,678       -17,887         1,091

Total Cash Flow f Operations               221,721       142,871       173,715

Investing Activities:
  Capital Exenditures                      -37,933       -36,860       -51,794
  Investments                              -68,948      -228,524    -1,033,393
  Other Cash Flows fr Investing            -24,183       -25,105     1,866,209

Total Cash Flows from Investing           -131,064      -290,489       781,022

Financing Activities:
  Dividends Paid                           -49,926       -51,111       -42,065
  Sale of Purchase of Stock                -86,311      -124,658       -94,039
  Net Borrowings                           250,000      -110,554      -110,554
  Other Cash Flows fr Financing            -38,101       -63,853     1,866,209

Total Cash Flows from Financing             75,662      -350,176      -376,457

  Effect of Exchange Rate Chg                    0             0             0

Change in Cash & Cash Equiv.               166,319      -497,794       578,280



Annual Balance Sheets:                              (All Numbers in Thousands)
  Period Ending                          09/30/201      9/30/2015     9/30/2014
Current Assets:
  Cash & Cash Equivalents                 3,908,066     4,415,026     5,538,389
  Short Term Investments                          0             0             0
  Net Receivables                            37,669        40,429     8,376,835
  Inventory                                       0             0             0
  Other Current Assets                            0             0             0
  Total Current Assets                    3,945,735     4,455,455    13,915,224

  Long-Term Investments                  13,251,413    13,194,413     4,597,707
  Property, Plant & Equipt                  310,978       337,345       341,505
  Goodwill                                        0             0             0
  Intangible Assets                         296,989       299,358       302,909
  Accumulated Amortization                        0             0             0
  Other Assets                              407,394       291,019       179,888
  Deferred LT Asset Charges                  16,047        14,513        16,515

Total Assets                             14,888,063    14,568,324    14,756,041

Current Liabilities:
  Accounts Payable                          188,582       100,718       106,826
  Current Portion LT Debt                 2,080,000     1,830,000     1,930,000
  Other Current Liabilities              10,600,852    10,631,703    10,716,928
  Total Current Liabilities              12,869,434    12,562,421     12,753,754

  Long Term Debt                            188,582       100,718       106,826
  Other Liabilities                       2,080,000     1,830,000     1,930,000
  Deferred LT Liab. Charges              10,600,852    10,631,703    10,716,928
  Minority Interest                               0             0             0
  Negative Goodwill                               0             0             0

Total Liabilities                        12,912,332    12,612,645    12,782,758

Stockholder Equity:
  Misc. Options, Warrants                         0             0             0
  Redeemable Preferred Stock                      0             0             0
  Preferred Stock                                 0             0             0
  Common Stock                              134,308       133,696       133,323
  Retained Earnings                         943,877       829,754       706,149
  Treasury Stock                           -739,686      -651,836      -525,108
  Capital Surplus                         1,648,388     1,643,712     1,638,211
  Other Stockhohlder Equity                 -11,156           353        20,708
  Total Stockholder Equity                1,975,731     1,955,679     1,973,283

Net Tangible Assets                       1,678,742     1,656,321     1,670,374



Washington Federal, Inc. (WAFD)             [Indices near +3.0, near zero,
                                            or < zero bear special attention.]
P/E Ratio Tests:
P/E Ratio < 28?            1.5677          P/E Ratio > 5?             1.0000
P/E Ratio Vs Growth Rate:  0.0000          Forward P/E Ratio < 28?    1.7001
Price/Sales Ratio < 2.3?   0.3657          Inventory/Sales < 5%?      1.0000
Sales < $1 Billion?        1.7128          Operating Margin < 7.5%?   0.1348

Balance Sheet Tests:
Debt/Equity < 0.40?        1.0000          Long-Term Debt Service:    3.0000
LTD Being Reduced?         0.0000          Short-Term Debt Service:   3.0000
Current Ratio > 2?         0.1533          Working Capital >= 1.5?    3.0000
Leverage Ratio < 20%?      3.0000          Debt/Assets < 1?           3.0000
Quick Ratio > 1?           3.0000          Inventory Turnover > 1?    1.0000
Share Equity Increase:     2.0013          Market Cap.< 1.5 Billion?  0.4990
                                           Intangibles < 3% Assets?   1.5039
Income Tests:
Profit Margin < 7.5%?      3.0000          EPS Annual Growth > 10%?   0.0977
Dividend Yield > 2.0%?     1.1111          EPS 3-yr Growth > 15?      0.1439
Enterprise Value/Revenue   3.0000          EPS Growth Consistent?     2.0000
Enterprise Value/EBITDA:   3.0000          Collection < 45 days?      1.9108
EPS Qrtly Growth > 10%?    0.0000          Gross Pft/Cur. LTD > 1?    0.0000
                                           Borrowing Int. Rate < 6%?  3.0000
Stock Performance Tests:
Volatility > 25%?          1.2885          % Held by Insiders < 5%?   3.0000
Beta > 1.25?               0.9280          % Held by Institut. < 50?  0.5624
50 Da MA > 200 Da MA?      0.0063          % Held by Institut. > 30?  2.9633
52-Wk Change vs. S&P 500:  2.3852          Short Ratio > 5?           1.3700
Price/Book Value < 3?      2.0237          Short % of Float > 20?     0.1940
Return on Assets > 17%?    0.0676          Average Volume > 100,000?  3.0000

Cash Flow Tests:
Oper. C.F. > Lever'd C.F:  3.0000          Positive Free Cash Flow?   3.0000
Positive Oper. Cash Flow?  3.0000          Price to C.F.Ratio < 14?:  1.9954
                                           Cash Flow / Assets > 10%?  0.2878

WAFD   Washington Federal, Inc.            Overall Zenith Index:      1.5919


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Financial Statements

Income Statement:

Balance Sheet:

Cash Flow Statement:


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Average to Current P/E Ratios
              (WAFD)     Washington Federal Inc.

                               2012    2013    2014    2015    2016

          Annual Earnings:     1.29    1.45    1.55    1.67    1.78
Average Price During Year:    16.56   19.31   21.80   22.47   24.82

                P/E Ratio:    12.84   13.32   14.06   13.46   13.94

 Average 5-Year P/E Ratio  =  13.52
             Current Price =  33.6

Previous 5 Quarter Earnings:   0.47    0.49    0.46    0.47    0.49

           Current Annualized (Last Four Quarters) Earnings =  1.42
                                                           ________
                                 Average PE / Current PE =     0.57
                                                           --------

                                      ...a number above 1.00 is good
                                                1.00 or below is bad


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Intrinsic Value (DCF)

Intrinsic Value by Discounted Cash Flow Method:

Intrinsic Value



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Book Value

Tangible Book Value:

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Insider Activity

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Institutional Activity

Institutional Orders to Buy or Sell:

institutions 1
Ownership:

institutions 2


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Sentiment

sentiment

Zenith uses the "sentiment" score above or below 50 to award a positive or negative point in the Decision Matrix.

sentiment sentiment sentiment



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Short Interest Ratio

As the short interest rises as a percentage of average daily share volume (Days to Cover), this is considered a measure of negative sentiment. Similarly, a decrease in that percentage is considered positive sentiment.

short interest short interest


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Channeling Potential

 
The summary below includes a value for `Degree,' which refers on a
scale of 1 to 10 the range of a channel in the period under consi-
deration compared to the total range of price movement. It also looks
for the last closing price to be within the channel, otherwise zeroed.
The `Index' is the `Degree' weighted for volatility.  Generally, the
the higher the index, the more suitable is the stock for trading as
a `rolling stock' between channel high and low points.

Results for WASHINGTON FEDERAL:
Symbol? WAFD
Total Months Available:  65
       Months in Cycle?   4

Months Covered by Periods:  12

Period 1           Period 2          Period 3
   H1      L1        H2      L2        H3      L3
  31.45   24.37     35.95   30.75     35.30   31.20

RANGE   =  35.95  TO   24.37            Close =  33.60
CHANNEL =  31.45  TO   31.20           Degree =   0
Volatility =   0.74%                    Index =   0
Channel Chart



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MACD Histogram Divergence

The theory is that connecting the two most recent peaks or valleys of the MACD histogram will signal the direction of the next major move.



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Intraday Chart

2 Days:



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Val Idea

2 out of 8 favorable, (negative opinion.)

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Time Series Forecast

Time Series 1 Time Series 2


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Neural Network Prediction

"Neurostock" can only track long trades. Therefore its performance, as tracked by itself on stocks which are consistently falling, may not appear as good as it could if each "sell" signal were a "short sale."

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Heading
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3 out of 3 of the ultimate systems favor an upmove.


System Below:
Short term outlook: Positive: Bright Green, Negative: Bright Red
Long term outlook: Postive: Dark Green, Negative: Dark Red.




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Recommendation

870
Decision Weighting Factors
FactorsWeighted Points
News + 1
Comparison + 1
Industry + 1
Bond Issue 0
Zenith Index + 1
Non-GAAP vs. GAAP Earnings - 1
Cash Flow - 1
Average to Current P/E - 1
Ratios + 1
Market Grader - 1
Intrinsic Value DCF + 1
Tangible Book Value - 1
Projected Earnings + 1
Research Reports + 1
Analysts - 1
Executive Perquisites - 1
Insider Activity - 1
Institutional Activity - 1
Management Reporting + 1
Short Interest + 1
Sentiment + 1
Standard & Poor's - 1
Moving Average + 1
Right Time Study - 1
MACD Histogram Divergence + 1
Val Idea - 1
Stock Consultant - 1
Point & Figure + 1
Wall Street Analyzer - 1
Marketspace Chart + 1
Time Series Chart + 1
Neural Network + 1
Stock Options - 1
Ultimate Trading Systems + 1
Total + 3
Place 870 shares of Washington Federal, Inc. (WAFD) on the Active List.