Capital Federal Financial: Momentum Buy Alert

Capital Federal Financial (CFFN) is distinguishing itself from its financial brethren by avoiding risky assets and producing solid earnings growth. Shares of Capital Federal are up over 30% on the year.

Company Description

Capital Federal Financial is the holding company of Capital Federal Savings Bank, a regional bank servicing the state of Kansas. The company was founded in 1893, has a market cap of $3.29 billion and is headquartered in Topeka Kansas.

Third-Quarter Results

Capital Federal is striking a blow for the credibility of responsible banking by sticking to the fundamentals and maintaining appropriate leverage ratios. The company’s third-quarter results are a testament to this approach.

Net income totaled $14.4 million, almost double last year’s $7.3 million. This produced earnings of 20 cents per share, ahead of analyst estimates of 17 cents.

This is the third time in the last three quarters that the company has surprised and beaten analyst estimates, having done so by an average of 2 cents, or 17.31%.

Capital Federal noted that the big jump in its income was a result of a decrease of $9.6 million in interest expenses due to maturing advances and the termination of interest rate swaps.

Non-Performing Assets

The balance of non-performing loans increased to $13.3 million from $7.4 million in the same period last year, placing the company’s percentage of non-performing loans as a total percentage of loans at .25%, up from .14% last year. In spite of the increase, this ratio remains very low in consideration of Capital Federals entire loan portfolio.

Management said that it does not have any concerns about its loan portfolio, believing considering the assets it contains to be high quality.

Analyst Estimates

After the solid quarter, analysts went ahead and boosted their earnings estimates. The current-year estimate has jumped to 69 cents per share from 64 cents 60 days ago.

The next-year estimate is bullish, pegged at 89 cents per share, a 30 earnings growth projection.

The Chart

Shares of CFFN have had a great year, rallying from less than $30 to the recent high above $51. Since then, this stock has dipped lower, but resides well above the macro-level trend line that has been in play since the beginning of the year. Take a look at the chart.

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