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Monday, Citi analysts initiated a 90-day Positive Catalyst Watch on Ally Financial (NYSE: NYSE:ALLY), citing expectations of strong origination yields and stable or improved auto losses year-over-year. The $11.2 billion financial services company, which currently trades near its InvestingPro Fair Value, has maintained consistent profitability and offers a 3.29% dividend yield. The analysts noted an improving sentiment toward the company, anticipating that Ally Financial’s management will confirm ongoing positive trends in auto credit and net interest margin (NIM) expansion.[Discover more insights with InvestingPro, which reveals 6 additional key tips about ALLY’s performance and outlook.]
Ally Financial’s auto losses for 2025 are projected to meet or exceed the midpoint of the guidance range, which is set between 200-225 basis points (bps). Trading at 0.97 times book value and maintaining dividend payments for 10 consecutive years, the company has demonstrated financial resilience. Analysts expect this performance to continue if the flow-to-loss ratios and delinquencies remain stable, aligning with the management’s update from March. The 2024 vintage has already been outperforming expectations, with the 2023 vintage showing signs of improvement, which could lead management to reaffirm these positive credit trends during their next update.
In terms of net interest income (NII), Citi anticipates an increase in origination yields that align with management’s high 9-handle guidance, compared to the seasonally low fourth quarter at approximately 9.6%. This expectation is based on a higher average 3-year benchmark quarter over quarter and an anticipated widening of spreads, which were around 575 bps in the fourth quarter. With the next earnings report scheduled for April 17, investors will be closely watching these metrics. Ally Financial is expected to shift away from a seasonally high S-tier mix.[Access detailed financial metrics and comprehensive analysis with a InvestingPro subscription, including exclusive insights from our Pro Research Report.]
The research firm suggests that if Ally Financial’s management can provide updates on steady credit trends and higher origination yields, the stock could see significant upside on earnings day. Analyst price targets range from $33 to $56 per share, reflecting varied opinions on the company’s potential. Furthermore, the analysts mentioned that while the future of tariffs on automobiles is uncertain, any implementation of such tariffs could further benefit Ally Financial. Higher used car prices could lead to consumers prioritizing car payments, which would support better delinquency rates, and increase remarketing gains. These factors were observed in late 2021 and early 2022, contributing positively to NII.
In other recent news, Ally Financial reported its fourth-quarter 2024 earnings, surpassing analyst expectations with an earnings per share (EPS) of $0.78 compared to the forecast of $0.58. The company’s revenue reached $2.1 billion, exceeding the anticipated $2.01 billion. These results reflect a strong performance as the company continues to focus on its core businesses, while strategically exiting non-core areas such as credit cards and mortgages. Ally Financial has sold its credit card business and ceased new mortgage loan originations, marking a streamlined approach to its operations. BofA Securities recently adjusted its outlook on Ally Financial, increasing the stock’s price target to $42 from $38 and maintaining a Buy rating. Analyst Brandon Berman noted improvements in the company’s credit situation and suggested a potential positive impact from an earnings revision cycle. Despite a 12% reduction in the 2025 earnings estimate due to the sale of the Card business, the analyst remains optimistic about Ally Financial’s performance. These developments indicate the company’s strategic focus on strengthening its core operations and enhancing shareholder value.
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