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Ally Financial (ALLY) Down 1.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Ally Financial (ALLY - Free Report) . Shares have lost about 1.1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ally Financial due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Ally Financial Q1 Earnings Top Estimates, Costs Rise

Ally Financial’s first-quarter 2019 adjusted earnings of 80 cents per share surpassed the Zacks Consensus Estimate of 79 cents. Further, the bottom line compared favorably with the prior-year quarter’s figure of 68 cents.

Results benefited from an improvement in revenues. Moreover, the quarter witnessed growth in loans and deposit balances. However, higher non-interest expenses along with rise in provisions were the major headwinds.

After taking into consideration non-recurring items, net income available to common shareholders (GAAP basis) for the reported quarter was $374 million, increasing from $250 million registered in the prior-year quarter.

Revenues Improve, Expenses Rise

Total net revenues were nearly $1.60 billion, up 13.9% year over year. Further, the figure surpassed the Zacks Consensus Estimate of $1.53 billion.

Total non-interest expenses increased 2% year over year to $830 million. The rise was mainly due to an increase in compensation and benefits expenses, and other operating expenses.

Credit Quality Worsens

Non-performing loans of $987 million at the end of the reported quarter were up 14.4% year over year. Moreover, provision for loan losses increased 8% year over year to $282 million.

Strong Balance Sheet, Capital Ratios Mixed

Total net finance receivables and loans amounted to $128.8 billion as of Mar 31, 2019, compared with $128.7 billion as of Dec 31, 2018. Deposits totaled $113.3 billion, increasing from $106.2 billion as of Dec 31, 2018.

As of Mar 31, 2019, total capital ratio was 12.5%, decreasing from 12.6% registered in the prior-year quarter end. Tier I capital ratio was 11.0%, unchanged from the Mar 31, 2018 level.

Share Repurchases

During the reported quarter, the company repurchased shares worth $211 million.

2019 Outlook

Management expects adjusted earnings to grow 7-10%.

Adjusted total net revenues are projected to be up in the range of 4-6% driven by ongoing optimization within auto portfolio, structural benefits associated with growing deposits and measured growth in capital-efficient assets.

The company expects used-vehicle prices to fall by 3-5%.

Net charge-offs in the retail auto portfolio are likely to be in the lower end of 1.4-1.6%.

Management anticipates the corporate finance segment’s portfolio to grow in the mid-to-high-teens rate.

The company expects origination yields to be in the low-to-mid 7% range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Ally Financial has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ally Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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