On Monday, Piper Sandler adjusted the price target for Washington Federal (NASDAQ:WAFD) shares, moving it up to $31.00 from the previous $29.00. The firm maintained a Neutral rating on the stock.
The adjustment follows Washington Federal's decision to sell $3.2 billion of multifamily loans to Bank of America at a 8.0% discount.
These loans were originally part of a portfolio acquired from LBC and were shifted into held-for-sale (HFS) during the second fiscal quarter, with an approximate yield of 4.50%.
The transaction is expected to affect Washington Federal's near-term net interest income (NII) expectations, as the anticipated accretion from the loans will no longer contribute to earnings.
Analysts estimate that the marked-to-market yield of the loans is closer to 6.50%. The sale, however, will provide Washington Federal with increased balance sheet flexibility, which could be used for a variety of financial maneuvers including cash redeployment, loan production, paying off higher-cost funding, or considering stock buybacks.
In light of this development, Piper Sandler has revised its earnings per share (EPS) estimates for Washington Federal for the years 2024 and 2025.
The estimated EPS has been adjusted to $2.25 for 2024, down from $2.28, and raised to $3.10 for 2025, up from $3.00. The revision reflects expectations of weaker net interest income and potential share repurchase activity.
The new price target of $31.00 is based on a 10.0 times multiple of the firm's projected 2025 earnings per share, which is an increase from the previous 9.5 times multiple.
This valuation also takes into account a discount relative to Washington Federal's peers, which trade at an average multiple of 10.9 times.
The sale of the loans is seen as a strategic move to crystallize the rate mark and provide the company with options for financial optimization.
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