Ally Financial holds stock target, Equalweight rating on Q3 earnings beat

On Monday, Barclays maintained an Equalweight rating on shares of Ally Financial (NYSE: NYSE:ALLY), with a consistent price target of $36.00. The firm's analysis followed Ally Financial's third-quarter earnings for 2024, which surpassed expectations due to a lower tax rate enhanced by electric vehicle (EV) lease credits.

Despite this, Ally Financial experienced an increase in its provision for credit losses and net charge-offs related to its retail auto portfolio. Moreover, the company saw a decrease in its net interest margin, aligning with the lowered consensus after its mid-September conference presentation.

Ally Financial has adjusted its full-year retail auto net charge-off (NCO) expectations multiple times throughout the year, now setting it between 2.25% and 2.30%. This figure has incrementally risen from an initial estimate of around 1.9% in January.

The company also revised its net interest margin outlook for the full year of 2024 to approximately 3.20%, down from the previous estimate of around 3.30%. Despite the downward revisions, Ally Financial maintains a target net interest margin of 4.00% in the medium-term, although the timing of achieving this target remains uncertain.

In addition to the changes in credit loss provisions and net interest margin, Ally Financial reiterated its expectation for fee income growth in 2024, projecting an increase of 12%. The company also kept its expense outlook steady, anticipating total expenses to rise by less than 2%, with controllable expenses projected to decrease by more than 1%.

A significant update to the company's financial outlook is the expected tax rate, which Ally Financial now anticipates to be between -25% and -30%, a notable shift from the 0% to -5% range projected last quarter. This change is attributed to potential alterations in accounting methods for EV lease tax credits, which could spread the benefit to the net interest margin over the life of the lease, rather than recognizing it as an immediate tax credit.

In other recent news, Ally Financial reported its third-quarter 2024 earnings, revealing an adjusted earnings per share (EPS) of $0.95, influenced by tax credits related to electric vehicle lease volumes. Despite facing challenges such as interest rate volatility and inflationary pressures, the company managed to originate $9.4 billion in consumer loans in its auto segment. However, retail deposits saw a decline of $600 million in the quarter.

Raymond James recently upgraded Ally Financial's stock from Underperform to Market Perform, based on the belief that the stock has already experienced the bulk of its underperformance. Meanwhile, BTIG maintains a neutral stance, citing concerns about the company's credit trends and net interest margins.

In other company news, Ally Financial announced a quarterly dividend of $0.30 for Q4 2024. The company's insurance segment reached a record $384 million in premiums, and electric vehicle lease originations accounted for 12% of total origination volume. These are some of the recent developments reflecting Ally Financial's ongoing efforts to navigate the current economic environment.

InvestingPro Insights

Ally Financial's recent financial performance and outlook can be further contextualized with real-time data from InvestingPro. The company's market capitalization stands at $10.67 billion, with a price-to-earnings ratio of 13.94, indicating a relatively modest valuation compared to some peers in the financial sector.

InvestingPro Tips highlight that Ally Financial has maintained dividend payments for 9 consecutive years, which may appeal to income-focused investors. This consistency in dividend payments aligns with the company's ability to generate profits, as evidenced by its profitability over the last twelve months.

However, it is worth noting that 8 analysts have revised their earnings downwards for the upcoming period, which could be related to the challenges mentioned in the article, such as increased credit loss provisions and decreased net interest margin. This caution from analysts is reflected in the stock's performance, with InvestingPro data showing a 15.8% price decline over the past three months.

Despite these challenges, Ally Financial's stock has shown resilience over a longer timeframe, with a substantial 50.76% total return over the past year. This performance suggests that investors may be looking beyond short-term headwinds and focusing on the company's long-term potential.

For readers interested in a deeper analysis, InvestingPro offers 7 additional tips for Ally Financial, providing a more comprehensive view of the company's financial health and market position.

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