CapFed Stock Climbs 13% after joining index but still down 21% YTD

By Michael Hooper

Capitol Federal Financial (CFFN) stock jumped 13% on Friday after it was announced the company would join the S&P SmallCap 600. The stock had hit a recent low of $8.75, but closed Friday at $10.60 per share.

Topeka-based Capitol Federal Financial (CFFN) is down 21% year-to-date compared with a 4% positive return of the S&P 500 through Oct. 2, 2020. The general stock market fell 30% in March during the Covid-19 crisis, but recovered over the spring and summer.

Evergy (EVRG) -- which is a combination of Westar Energy and Great Plains Energy -- is down 19% year-to-date.

Both Evergy and Capitol Federal are conservative retirement stocks that pay nice dividends but are not growth stocks. Mega cap growth stocks like Apple and and Google are winning in the market this year. Any stock that benefits from the home consumer is doing well. Amazon, Facebook, Zoom are all up gigantic. Banks, oil and utility stocks all have performed poorly this year. They are out of favor.

Evergy stock fell from $65 per share to $50 per share after the company announced in early August it was not going to seek a merger or sale as recommended by hedge fund Elliott Management. Investors, thinking there is not going to be a potential upside in a merger or acquisition, dumped the stock. Evergy earnings have been a little weak in the last three quarters yet Evergy is earning respectable money and able to pay its dividend, currently yielding 3.82%. Evergy management sees opportunities to reduce operating costs through its strategic plan by finding synergies between the Missouri and Kansas utilities and eliminating waste. Evergy is stepping up its capital improvement plan, to generate more returns in the future. EVRG stock closed Friday at $51.97

Capitol Federal Financial has fallen from $14 per share in January to $8.75 per share in mid-September. Then recovered 13% in one day after being appointed to replace Neogen (NEOG) in the S&P SmallCap 600 upon Neogen's move into the S&P MidCap 400.

Banks tend to perform better with higher interest rates, this gives them more flexibility in their net interest margin, but interest rates have fallen dramatically this year. The 10-year Treasury only yields 0.69%. People will see almost no returns on their savings accounts. Earnings at CapFed have been OK, but it's possible it may see some benefit in the third quarter from the uptick in demand for housing in Kansas. A few years ago, the company purchased Capital City Bank; this has added new services to the CapFed menu, including commercial loans and trust services. These areas of business will see growth as the bank scales out its commercial and trust services to all of its locations.

On August 6th, Michel' Phillip Cole, a member of the board of directors of Capitol Federal Financial, filed Form 4 with the Securities and Exchange commission saying she had purchased 7,040 shares on August 6th at 9.9459 per share. She listed the purchase as an open market or private purchase of stock. The form says she owns 19,411 shares of Capitol Federal. 

Perhaps the CapFed board member's recent purchase of stock may indicate she thinks there is value in the company and shares are under priced. The bank pays board members $66,000 a year for serving on the board.

CapFed stock is trading near book value. Before Covid-19, CFFN stock traded at 1.4 times book value in the previous three years compared to the current 1.12 ratio.

Disclosure: The author owns shares of Evergy (EVRG), but owns no shares of Capitol Federal.