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Ally Financial (ALLY) Up 6.1% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Ally Financial (ALLY - Free Report) . Shares have added about 6.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Ally Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Ally Financial Q2 Earnings Miss, Costs Rise Y/Y
Ally Financial’s second-quarter 2022 adjusted earnings of $1.76 per share lagged the Zacks Consensus Estimate of $1.90. The bottom line reflected a decline of 24.5% from the year-ago quarter.
Results were primarily hurt by a rise in expenses, a decline in other revenues and higher provisions. However, an improvement in net financing revenues was an offsetting factor. Loan balances witnessed a rise in the reported quarter.
After considering non-recurring items, net income (on a GAAP basis) was $454 million or $1.40 per share, down from $900 million or $2.41 per share in the prior-year quarter.
Revenues Decline Marginally, Expenses Rise
Total GAAP net revenues were $2.08 billion, down marginally year over year. The top line missed the Zacks Consensus Estimate of $2.21 billion.
Net financing revenues were up 14% from the prior-year quarter to $1.76 billion. The rise was driven by an increase in interest and fees on finance receivables and loans, total interest and dividends on investment securities, interest-bearing cash, other earning assets, and operating leases.
The adjusted net interest margin was 4.06%, up 49 basis points year over year.
Total other revenues were $312 million, down 42% from the prior-year quarter.
Total non-interest expenses were up 5.9% year over year to $1.14 billion. The upswing stemmed from higher insurance losses and loss-adjustment expenses, and other operating expenses.
The adjusted efficiency ratio was 43.9%, down from 44.5% in the year-ago period. A decline in the efficiency ratio indicates an improvement in profitability.
Credit Quality Worsens
Non-performing loans of $1.38 billion as of Jun 30, 2022, rose 7.6% year over year.
In the reported quarter, the company recorded net charge-offs of $153 million against net recoveries of $6 million in the prior-year quarter. Also, it reported provision for loan losses of $304 million against provision benefits of $32 million in the prior-year quarter.
Loan Balances Rise, Deposits Fall
As of Jun 30, 2022, total net finance receivables and loans amounted to $125 billion, up 2.4% from the prior quarter. Deposits declined 1.5% from the prior-quarter end to $140.4 billion.
Capital Ratios Deteriorate
As of Jun 30, 2022, the total capital ratio was 12.7%, down from 14.8% in the prior-year quarter. Tier I capital ratio was 11.1%, down from 13.1% as of Jun 30, 2021.
Share Repurchase Update
In the reported quarter, the company repurchased $600 million worth of shares.
Outlook
NIM is expected to be in the upper 3% range in the medium term.
Other revenues are projected to be in the mid-$400 million range in every quarter of 2022. This includes modest investment gains.
The year-over-year expense increase in 2022 is expected to moderate over the remainder of the quarters. Excluding the acquisition of Fair Square, 2022 operating expense growth is anticipated to be consistent with the prior years.
The Fair Square deal is projected to be EPS accretive by the end of 2022 and drive positive operating leverage in 2023.
Used-car values are expected to decline steadily.
In 2022, retail NCOs are expected to be less than 1%. The same is projected to stabilize at 1.4-1.6% in 2023 and 2024.
Consumer originations of more than $45 billion are expected for 2022.
The company expects a core return on tangible common equity (ROTCE) of 16-18% for 2022 and the medium term.
The effective tax rate is anticipated to be 23-24% for 2022.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
Currently, 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 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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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Ally Financial (ALLY) Up 6.1% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Ally Financial (ALLY - Free Report) . Shares have added about 6.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Ally Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Ally Financial Q2 Earnings Miss, Costs Rise Y/Y
Ally Financial’s second-quarter 2022 adjusted earnings of $1.76 per share lagged the Zacks Consensus Estimate of $1.90. The bottom line reflected a decline of 24.5% from the year-ago quarter.
Results were primarily hurt by a rise in expenses, a decline in other revenues and higher provisions. However, an improvement in net financing revenues was an offsetting factor. Loan balances witnessed a rise in the reported quarter.
After considering non-recurring items, net income (on a GAAP basis) was $454 million or $1.40 per share, down from $900 million or $2.41 per share in the prior-year quarter.
Revenues Decline Marginally, Expenses Rise
Total GAAP net revenues were $2.08 billion, down marginally year over year. The top line missed the Zacks Consensus Estimate of $2.21 billion.
Net financing revenues were up 14% from the prior-year quarter to $1.76 billion. The rise was driven by an increase in interest and fees on finance receivables and loans, total interest and dividends on investment securities, interest-bearing cash, other earning assets, and operating leases.
The adjusted net interest margin was 4.06%, up 49 basis points year over year.
Total other revenues were $312 million, down 42% from the prior-year quarter.
Total non-interest expenses were up 5.9% year over year to $1.14 billion. The upswing stemmed from higher insurance losses and loss-adjustment expenses, and other operating expenses.
The adjusted efficiency ratio was 43.9%, down from 44.5% in the year-ago period. A decline in the efficiency ratio indicates an improvement in profitability.
Credit Quality Worsens
Non-performing loans of $1.38 billion as of Jun 30, 2022, rose 7.6% year over year.
In the reported quarter, the company recorded net charge-offs of $153 million against net recoveries of $6 million in the prior-year quarter. Also, it reported provision for loan losses of $304 million against provision benefits of $32 million in the prior-year quarter.
Loan Balances Rise, Deposits Fall
As of Jun 30, 2022, total net finance receivables and loans amounted to $125 billion, up 2.4% from the prior quarter. Deposits declined 1.5% from the prior-quarter end to $140.4 billion.
Capital Ratios Deteriorate
As of Jun 30, 2022, the total capital ratio was 12.7%, down from 14.8% in the prior-year quarter. Tier I capital ratio was 11.1%, down from 13.1% as of Jun 30, 2021.
Share Repurchase Update
In the reported quarter, the company repurchased $600 million worth of shares.
Outlook
NIM is expected to be in the upper 3% range in the medium term.
Other revenues are projected to be in the mid-$400 million range in every quarter of 2022. This includes modest investment gains.
The year-over-year expense increase in 2022 is expected to moderate over the remainder of the quarters. Excluding the acquisition of Fair Square, 2022 operating expense growth is anticipated to be consistent with the prior years.
The Fair Square deal is projected to be EPS accretive by the end of 2022 and drive positive operating leverage in 2023.
Used-car values are expected to decline steadily.
In 2022, retail NCOs are expected to be less than 1%. The same is projected to stabilize at 1.4-1.6% in 2023 and 2024.
Consumer originations of more than $45 billion are expected for 2022.
The company expects a core return on tangible common equity (ROTCE) of 16-18% for 2022 and the medium term.
The effective tax rate is anticipated to be 23-24% for 2022.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
Currently, 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 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Ally Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.