This real estate financier beat analysts’ estimates by three cents last quarter, and posted record results for last year. The shares were recently upgraded by Morgan Stanley to ‘Overweight’.
Walker & Dunlop, Inc. (WD)
From Validea Hot List Newsletter
Strategy: Growth Investor
Based on: Martin Zweig
Walker & Dunlop, Inc. (WD) is a holding company, which conducts all of its operations through Walker & Dunlop, LLC, its operating company. Walker & Dunlop is a provider of commercial real estate financial services in the United States, with a primary focus on multifamily lending. The company originates, sells, and services a range of multifamily and other commercial real estate financing products, including Multifamily Finance, Federal Housing Administration Finance, Capital Markets, and Proprietary Capital. It originates and sells loans through the programs of the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac, and together with Fannie Mae, the government-sponsored enterprises), the Government National Mortgage Association (Ginnie Mae) and the Federal Housing Administration, a division of the United States Department of Housing and Urban Development (together with Ginnie Mae, HUD).
P/E RATIO: PASS: The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. WD’s P/E is 8.82, based on trailing 12 month earnings, while the current market PE is 15.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: PASS: WD’s revenue growth is 28.41%, while its earnings growth rate is 25.52%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, WD passes this criterion.
The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.
CURRENT QUARTER EARNINGS: PASS
QUARTERLY EARNINGS ONE YEAR AGO: PASS
POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: PASS
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: PASS
LONG-TERM EPS GROWTH: PASS: One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. WD’s long-term growth rate of 25.52%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.
INSIDER TRANSACTIONS: PASS: A factor that adds to a stock’s attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For WD, this criterion has not been met (insider sell transactions are 131, while insiders buying number 33). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion.
John Reese, Validea Hot List Newsletter, www.validea.com, 877-439- 0506, March 25, 2016