GWB - Is Great Western Bancorp a Buy?
Great Western Bancorp (NYSE: GWB) beat analysts' estimates with its first-quarter 2020 earnings report last week, yet the stock has fallen 8% in the week since the report's release. Two key questions for investors going forward: What was behind the drop? Where does it go from here?
Great Western, based in Sioux Falls, South Dakota, is one of the leading agricultural lenders in the country. The stock underperformed in 2019, returning 11.1%, which was well below the S&P 500 average, as well as the average return in the banking sector. This was due, in large part, to a difficult market for farmers.
The Minneapolis Federal Reserve, in its third-quarter agricultural credit conditions survey, outlined the problem. Farm incomes fell in the third quarter due to low crop prices and trade woes, and that led to less spending on capital equipment and farm purchases. Furthermore, it pushed the rate of loan repayment down and prompted more renewals and extensions. In addition, interest rates on loans decreased due to Federal Reserve rate cuts. The report expected farm incomes to decrease further in the fourth quarter. That represents some severe headwinds for lenders like Great Western.