WaFd (WAFD) Stock May Be 4% Undervalued Despite Merger News

WaFd has delivered a 40.6% gain over the past three years, even as the share price has been choppy more recently. This puts fresh focus on whether that journey is backed by the returns the bank earns on its capital. With a major merger on the table and the stock now around US$32.54, the core issue is whether those returns are strong enough to justify where the market is pricing the business today.

• The 40.6% return over three years raises the question of whether WaFd's current valuation is still grounded in the economics of how effectively it reinvests and compounds its capital.
• The planned US$3.9b reverse merger with EverBank may reshape how efficiently the combined group can deploy capital and convert its expanded balance sheet into higher returns for shareholders.
• Prefer to judge WaFd on earnings? See why WaFd's 10.0x P/E tells a different valuation story.

The issue now is whether the returns WaFd earns on its capital are sufficient to support the current share price in light of that track record and the pending merger.

If you want to see how WaFd's capital efficiency compares with other businesses, it can help to line it up against 29 high quality undervalued stocks.

Is WaFd Fairly Priced on Excess Returns?

The Excess Returns model looks at how profit compares with the cost of equity and what that implies for long term value. For WaFd, book value sits at $36.81 per share against a stable book value estimate of $38.07 per share. This suggests the balance sheet is expected to grow but not at a rapid pace. Stable EPS is modelled at $2.91 per share, sourced from the median return on equity over the past five years, while the cost of equity is put at $3.10 per share.

That gap means the model sees a small shortfall in returns, with excess return per share estimated at a loss of $0.19 despite an average return on equity of 7.64%. Compared with a share price of $32.54, the Excess Returns model indicates WaFd's estimated intrinsic value is broadly in line with where the market is trading today. Because the planned $3.9b reverse merger with EverBank is framed around higher profitability, the projected uplift in returns helps explain why the Excess Returns outcome does not flag a large disconnect from the current price. Find out what WaFd could be worth using our Excess Returns estimate.

The WaFd Narrative: What Would Justify Today's Price?

Simply Wall St Narratives step in where WaFd's valuation puzzle leaves off by spelling out which combinations of future growth, margins and earnings would need to play out for the stock to be worth materially more or less than it is today on the market. Instead of a single number from a ratio or model, they map the underlying assumptions so you can see the future that figure depends on and track over time whether WaFd's actual progress lines up with it, all on Simply Wall St's Community page.

One of the top community narratives on WaFd: 13% undervalued

"Strong digital capabilities through Pike Street Labs, enhanced small business platforms like Treasury Express and CashFlow Central, and the launch of WaFd Wealth Management with a goal of $1 billion in assets under management…"

Discover why this Narrative puts WaFd at 13% undervalued.

Before closing the book on WaFd, one more check belongs beside the price chart

The return profile and merger story only tell part of it, because the people steering WaFd and the way they are rewarded can strongly shape what happens from here. See who runs WaFd and how they are paid.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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