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Will Ally Bank Beat Q2 Earnings on Higher Auto Finance?

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Ally Financial Inc. (ALLY - Free Report) is slated to announce its second-quarter 2014 results tomorrow, Jul 29, before the opening bell.

In Apr 2014, Ally Financial resumed trading on NYSE following its emergence from bankruptcy and the subsequent initial public offering. In the preceding quarter, Ally Bank reported net income from continuing operations of $198 million, up substantially from the prior-year quarter figure of $60 million. Results benefited from top-line growth and lower operating expenses, which were, however, partially offset by a rise in provision for loan losses.

Will Ally Bank be able to beat the earnings estimates? Let us see how things have shaped up for this announcement.

Factors Influencing Q2 Results

Ally Bank primarily offers auto loans. Hence, the company’s performance largely depends on the overall health of the Auto Industry. The U.S. light-vehicle sales rose 4% year over year to 8.17 million units in the first half of 2014.

Further, for the first time since Jul 2006, sales on a seasonally adjusted annualized rate (SAAR) basis reached the 17 million mark in Jun 2014. Also, SAAR has consistently remained above 16 million units in the last four months. Hence, we believe that driven by the rise in auto sales, Ally Bank should witness an improvement in Automotive Finance and Insurance divisions’ revenues.

Ally Bank has been able to keep a check on the expense front too. Though non-interest expenses are expected to mount, the rise in the same will not likely dampen bottom-line growth in the quarter.

Further, as Ally Bank will likely experience a rise in auto-loan origination, provision for loan losses is also expected to remain on the higher side.

Notably, Ally Bank’s quarterly activities were not sufficient to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained unchanged at 32 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that Ally Bank is likely to beat the Zacks Consensus Estimate in the second quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP:  The Earnings ESP for Ally Bank is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 32 cents.

Zacks Rank: Ally Bank’s Zacks Rank #3 increases the predictive power of ESP. But we also need to have a positive ESP to be confident of an earnings surprise call.

Stocks to Consider

Ally Bank is not the only firm looking up this earnings season. We also anticipate earnings beat from three finance companies:

Fortress Investment Group LLC has an Earnings ESP of +17.65% and carries a Zacks Rank #3 (Hold). It is scheduled to report results on Jul 31.

Oaktree Capital Group, LLC (OAK - Free Report) has an Earnings ESP of +6.90% and carries a Zacks Rank #2. It is slated to report results on Jul 31.

Earnings ESP for The Carlyle Group LP (CG - Free Report) is +4.55% and it carries a Zacks Rank #3. It is expected to report results on Aug 6.

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

The Carlyle Group L.P. (CG) - free report >>

Oaktree Capital Group, LLC (OAK) - free report >>

Ally Financial Inc. (ALLY) - free report >>

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