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On Wednesday, Citi analysts, led by Keith Horowitz, maintained a Buy rating on Ally Financial (NYSE:ALLY) with a steady price target of $55.00. Currently trading at $40.30, the stock has analyst targets ranging from $32 to $56, with InvestingPro analysis indicating the stock is slightly undervalued based on its Fair Value model. The financial services company, with a market capitalization of $12.2 billion, outperformed expectations with a 9 cent core pre-provision net revenue (PPNR) beat compared to the consensus, attributed to a stronger top-line performance. Management provided guidance suggesting approximately 25% core PPNR, which is around 5% higher than the consensus, driven by a more favorable net interest margin (NIM) outlook. The implied net interest income (NII) is anticipated to be roughly 8% better than the Street's expectations, with expenses matching predictions but partially balanced by weaker fee income. Despite recent revenue challenges, showing an 8% decline in the last twelve months, InvestingPro data reveals the company maintains a solid dividend track record, having paid dividends consistently for 10 consecutive years.
In terms of credit, Ally Financial's auto net charge-offs (NCOs) are projected to be between 200 and 225 basis points, aligning with or surpassing Citi's estimates of approximately 225 basis points. The 2024 vintage is showing significantly better trends compared to the 2022 and 2023 vintages. Moreover, the sale of Ally's credit card business is seen as a positive step, allowing the company to concentrate on its core operations and enhance its capital position. Despite the sale being 15 cents earnings per share (EPS) dilutive, the release of capital is expected to offset this impact. According to InvestingPro's comprehensive analysis, which includes over 30 financial metrics and detailed Fair Value calculations, the company maintains a "Fair" overall financial health score of 2.21 out of 5.
Citi's analysis underlines key trends in net interest income and credit quality, reinforcing their confidence in Ally Financial's trajectory towards achieving over $6 in EPS by 2026. The reiteration of the Buy rating reflects this optimism in the company's financial prospects and strategic focus. With current diluted EPS at $2.51 and analysts forecasting $3.01 for FY2024, investors seeking deeper insights can access the full financial health analysis and Fair Value calculations through InvestingPro's detailed research reports, available for over 1,400 US stocks.
In other recent news, Ally Financial reported surpassing analyst expectations with its fourth-quarter earnings and revenue, alongside announcing strategic operational changes. The Detroit-based company posted adjusted earnings per share of $0.78, exceeding the analyst consensus of $0.58, and revenue of $2.1 billion, beating estimates of $2.01 billion. The company also reported net income of $668 million, or $1.80 per share, for the full year 2024, with adjusted EPS standing at $2.35.
In a notable development, Ally Financial announced plans to sell its Credit Card business and cease new mortgage loan applications. The company also implemented a workforce reduction, expected to generate over $60 million in annual savings.
Furthermore, the company's consumer auto originations reached $10.3 billion in the quarter, with the highest credit quality tier accounting for 49% of this volume. Retail deposits grew by $2.0 billion quarter-over-quarter, with a customer retention rate exceeding 95%. Ally Bank now serves 3.3 million depositors with $143 billion in balances, 92% of which are FDIC insured. These are among the recent developments shaping the company's trajectory.
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