Critical Analysis: Washington Federal (NASDAQ:WAFD) and CIT Group (NASDAQ:CIT)

Washington Federal (NASDAQ:WAFD) and CIT Group (NYSE:CIT) are both mid-cap finance companies, but which is the superior business? We will compare the two businesses based on the strength of their analyst recommendations, earnings, dividends, risk, institutional ownership, profitability and valuation.

Risk and Volatility

Washington Federal has a beta of 1.15, indicating that its stock price is 15% more volatile than the S&P 500. Comparatively, CIT Group has a beta of 1.5, indicating that its stock price is 50% more volatile than the S&P 500.

Institutional & Insider Ownership

84.4% of Washington Federal shares are held by institutional investors. 1.2% of Washington Federal shares are held by insiders. Comparatively, 0.4% of CIT Group shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Profitability

This table compares Washington Federal and CIT Group’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Washington Federal 29.61% 10.39% 1.29%
CIT Group 14.23% 8.58% 1.01%

Dividends

Washington Federal pays an annual dividend of $0.80 per share and has a dividend yield of 2.3%. CIT Group pays an annual dividend of $1.40 per share and has a dividend yield of 2.7%. Washington Federal pays out 33.3% of its earnings in the form of a dividend. CIT Group pays out 34.7% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Washington Federal has increased its dividend for 5 consecutive years and CIT Group has increased its dividend for 2 consecutive years.

Analyst Recommendations

This is a breakdown of current ratings and price targets for Washington Federal and CIT Group, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Washington Federal 0 1 0 0 2.00
CIT Group 0 4 3 0 2.43

Washington Federal presently has a consensus target price of $35.00, indicating a potential upside of 0.32%. CIT Group has a consensus target price of $57.00, indicating a potential upside of 9.43%. Given CIT Group’s stronger consensus rating and higher possible upside, analysts plainly believe CIT Group is more favorable than Washington Federal.

Earnings & Valuation

This table compares Washington Federal and CIT Group’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Washington Federal $651.16 million 4.31 $203.85 million $2.40 14.54
CIT Group $3.27 billion 1.53 $447.10 million $4.04 12.89

CIT Group has higher revenue and earnings than Washington Federal. CIT Group is trading at a lower price-to-earnings ratio than Washington Federal, indicating that it is currently the more affordable of the two stocks.

Summary

Washington Federal beats CIT Group on 9 of the 17 factors compared between the two stocks.

About Washington Federal

Washington Federal, Inc. operates as the bank holding company for Washington Federal, National Association that provides lending, depository, insurance, and other banking services in the United States. The company accepts deposit products, including business and personal checking accounts, and term certificates of deposit, as well as money market accounts and passbook savings accounts. It also provides single-family residential, construction, land acquisition and development, land consumer lot, multi-family residential, commercial and industrial, commercial real estate, home equity, business, and consumer loans. In addition, the company offers insurance brokerage services, such as individual and business insurance policies to customers and general public; holds and markets real estate properties; and acts as trustee. It serves consumers, mid-sized and large businesses, and owners and developers of commercial real estate. As of September 30, 2018, the company had 235 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.

About CIT Group

CIT Group Inc. operates as the holding company for CIT Bank, N.A. that provides banking and related services to commercial and individual customers. The company operates through Commercial Banking and Consumer Banking segments. The Commercial Banking segment offers lending, leasing, and other financial and advisory services primarily to small and middle-market companies; factoring, receivables management products, and secured supply chain financing; equipment leasing and secured financing to railroads and non-rail companies; equipment financing to small businesses. The Consumer Banking segment provides deposits, including checking and savings accounts, money market, and individual retirement accounts; time deposits and certificates of deposit; and offers residential mortgage and small business administration loans, as well as fiduciary services. The company also offers leasing and advisory, and online banking services. It operates through a network of 60 branches located in southern California. CIT Group Inc. was founded in 1908 and is based in New York, New York.

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