The next regional bank to consider, Washington Federal (WFSL), operates in the Pacific Northwest and other areas of the West. Its shares are down a modest 3% so far this year despite incrementally growing profits over the last four quarters. A small miss of a penny per share against analyst estimates sent shares lower, but the stock has recovered nicely at the end of June and early July on hopes of a strong quarter.
Community banks are typically valued based on some multiple of book value. During stable economic times, it was not uncommon for shares of a community bank to change hands at a price of 1.5 times book value or more. In the wake of the financial crisis, valuation metrics have changed. Today Washington Federal trades for 1 times book value.As for earnings, the average Wall Street estimate is for the company to make a profit of 97 cents per share for the year ending Sept. 30. In the following year, analysts have earnings growing by 35% to $1.31 per share. Those profits ultimately increase book value. For the stock to be valued at the same 1 times book value, share price must increase as profits are generated, making Washington Federal an intriguing buy today. >>Practice your stock trading strategies and win cash in our stock game.