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Ally Financial (ALLY) Stock Up on Q4 Earnings & Revenue Beat

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Shares of Ally Financial (ALLY - Free Report) rallied 1.7% following the release of its fourth-quarter and 2020 results. Adjusted earnings of $1.60 per share handily surpassed the Zacks Consensus Estimate of $1.05. Also, the bottom line surged 68.4% from the year-ago figure.

Results benefited from growth in revenues and lower provisions, partly offset by higher expenses. Further, the balance sheet position remained strong during the quarter.

After considering non-recurring items, net income available to common shareholders (on a GAAP basis) was $687 million or $1.82 per share, up from with $387 million or 99 cents per share in the prior-year quarter.

In 2020, adjusted earnings per share of $3.03 declined 18.5% year over year. Net income available to common shareholders (on a GAAP basis) was $1.09 billion or $2.88 per share, down from $1.72 billion or $4.34 per share in 2019.

Revenues Improve, Expenses Rise

Total net revenues for the reported quarter were $1.98 billion, up 20.6% year over year. The figure also surpassed the Zacks Consensus Estimate of $1.66 billion.

 In 2020, total net revenues grew 4.6% from the prior year to $6.69 billion.

Net financing revenues were up 12.7% from the prior-year figure to $1.30 billion. The rise was driven by higher gains on off-lease vehicles, higher retail auto revenues and lower funding costs. These were partially offset by higher mortgage premium amortization and lower commercial auto portfolio balance and yield.

Adjusted net interest margin was 2.92%, up 26 basis points (bps) year over year.

Total other revenues of $678 million improved 39.2%.

Total non-interest expenses were up 16.3% to $$1.02 billion. The upswing stemmed from a rise in all cost components.

Adjusted efficiency ratio at the end of the fourth quarter was 49.8%, up marginally from 49.4% in year-ago period. A rise in efficiency ratio indicates deterioration in profitability.

Credit Quality: Mixed Bag

Non-performing loans of $1.52 billion as of Dec 31, 2020, were up 46.9% year over year. However, net charge-off rate was 0.67%, down 24 bps. Moreover, provision for loan losses declined 63% to $102 million.

Balance Sheet Strong, Capital Ratios Improve

Total net finance receivables and loans amounted to $115.3 billion as of Dec 31, 2020 increasing marginally from the third quarter. Deposits totaled $137 billion, up 1.6%.

As of Dec 31, 2020, total capital ratio was 14.1%, up from 12.8% in the prior-year quarter. Tier I capital ratio was 12.4%, up from 11.2% as of Dec 31, 2019.

Our View

Ally Financial’s efforts to diversify the revenue base, enhance digital offerings and introduce products to further boost its profitability are impressive. However, persistently mounting expenses (as witnessed in the fourth quarter as well) and low interest rates are near-term concerns.

Ally Financial Inc. Price, Consensus and EPS Surprise

Ally Financial Inc. Price, Consensus and EPS Surprise

Ally Financial Inc. price-consensus-eps-surprise-chart | Ally Financial Inc. Quote

Currently, Ally Financial sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Earnings Release Date of Other Consumer Loan Providers

Both Capital One (COF - Free Report) and Navient Corporation (NAVI - Free Report) are slated to announce quarterly numbers on Jan 26, while SLM Corporation (SLM - Free Report) will report on Jan 27.

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