The finance sector has had a rather lethargic year so far, but there have been some interesting investing opportunities to emerge periodically. Notably, earnings expansion and positive estimate revisions make Ally Financial (ALLY - Free Report) stand out as a potential growth and value target right now.
Ally Financial provides consumer loans for car purchases. It is the largest automotive finance company in the U.S., serving nearly 20,000 dealerships and more than 4 million retail consumers.
Much has been made about the sluggishness of domestic auto stocks this year, but a lack of overall sales has not been the major shortcoming. While the threat of new tariffs has battered auto stocks throughout 2018, overall sales have shown year-over-year growth in certain months. Sure, total sales volume is likely to continue to tick down from 2016’s record highs, but we’re seeing some positive trends, such as a continued shift toward more expensive—and more profitable—SUVs and trucks.
For a financer like Ally, that likely spells good news. Moreover, Ally itself has worked to diversify its revenue base, improve margins, and reward shareholders. This helps explain its solid earnings trend and its Zacks Rank #1 (Strong Buy). Let’s take a closer look.
Latest Earnings and Outlook
Ally most recently reported earnings on July 26, 2018. The company notched adjusted earnings of 83 cents per share, crushing the Zacks Consensus Estimate of 71 cents. That result also marked a significant improvement from earnings of 58 cents per share in the prior-year quarter.
Total net revenue ticked higher to reach $1.46 billion, offsetting a slight uptrend in expenses. Ally repurchased shares worth $195 million in the quarter.
Ally’s impressive quarter led to a wave of positive earnings estimate revisions for the company. Here’s a look at the latest revision trend:
The important thing to note here is that the Zacks Consensus Estimates for Ally’s full fiscal year and upcoming fiscal year have moved higher on the back of universally positive agreement among analysts revising estimates for those periods.
For the full fiscal year, Ally is now expected to tally earnings growth of 30%. That expansion is expected to continue to the tune of at least 14% next year. Moreover, Ally has a long-term projected EPS growth rate of nearly 13% on an annualized basis.
These are encouraging earnings trends, but positive revisions and growth are just a few of the many things to like about Ally right now. Investors should also be interested in the case that its share are undervalued at their current levels.
In the below chart, you can see a look at how Ally’s P/E has stacked up against its industry’s average throughout the year:
Ally is currently trading at about 8.0x forward 12-month earnings. That’s a nice discount compared to the 9.1x average of its industry. Moreover, the stock is trading near its lowest earnings multiple of the past year, meaning investors are getting a unique opportunity to buy on the cheap right now.
It’s also worth noting that Ally has a PEG ratio of just 0.7, so the company’s earnings growth outlook is also coming at a good price.
Other Things to Like
As mentioned, Ally has looked to reward investors recently, especially in the wake of recent tax reform. That has taken the shape of both share repurchases and dividends, with the company opting to hike its quarterly payout by 15% to $0.15 per share in the most recent period.
The stock also looks decent from a technical perspective, with shares trading above their 50-day moving average for most of the trailing month.
Ally has the combination of positive earnings results and upward estimate revisions needed to earn our top designation, and its growth, income, and value characteristics help it shine even brighter.
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