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Why Is Ally Financial (ALLY) Down 0.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Ally Financial (ALLY - Free Report) . Shares have lost about 0.2% in that time frame, underperforming 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 Q3 Earnings Miss, Revenues Rise Y/Y

Ally Financial’s third-quarter 2022 adjusted earnings of $1.12 per share lagged the Zacks Consensus Estimate of $1.73. The bottom line reflects a decline of 48.1% 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 $272 million or 88 cents per share, down from $683 million or $1.89 per share in the prior-year quarter.

Revenues Improve, Expenses Rise

Total GAAP net revenues were $2.02 billion, up 1.6% year over year. However, the top line missed the Zacks Consensus Estimate of $2.15 billion.

Net financing revenues were up 7.8% from the prior-year quarter to $1.72 billion. The rise was driven by an increase in interest and fees on finance receivables and loans, interest on loans held for sale, total interest and dividends on investment securities, interest-bearing cash, other earning assets and operating leases.

The adjusted net interest margin was 3.83%, up 15 basis points year over year.

Total other revenues were $297 million, down 24% from the prior-year quarter.

Total non-interest expenses were up 15.9% year over year to $1.16 billion. The upswing stemmed from higher compensation and benefits expense, insurance losses and loss-adjustment expenses, and other operating expenses.

The adjusted efficiency ratio was 48.2%, up from 41.7% in the year-ago period. A rise in the efficiency ratio indicates a deterioration in profitability.

Credit Quality Worsens

Non-performing loans of $1.38 billion as of Sep 30, 2022, were up 7.6% year over year.

In the reported quarter, the company recorded net charge-offs of $276 million, up significantly from $54 million in the prior-year quarter. It also reported a provision for loan losses of $438 million, up significantly from $76 million in the prior-year quarter.

Loans & Deposit Balances Increase

As of Sep 30, 2022, total net finance receivables and loans amounted to $128.8 billion, up 3.1% from the prior quarter. Deposits increased 3.8% from the prior quarter end to $145.8 billion.

Capital Ratios Deteriorate

As of Sep 30, 2022, the total capital ratio was 12.4%, down from 14.6% in the prior-year quarter. Tier I capital ratio was 10.8%, down from 12.8% as of Sep 30, 2021.

Share Repurchase Update

In the reported quarter, the company repurchased $415 million worth of shares.


The company expects adjusted earnings per share of $1 in the fourth quarter of 2022.

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 Fair Square deal is projected to be EPS accretive by the end of 2022 and drive positive operating leverage in 2023.

Loan growth of $2-$3 billion is expected in the fourth quarter across the company’s consumer and corporate finance portfolios.

Ally Financial continues to expect modest retail deposit growth for the full year.

Management expects an impact of around $55 million within operating expenses and additional tax expenses, as it completes the termination of its legacy pension plan in the fourth quarter.

Retail auto portfolio yields are expected to continue expanding in the near term, driven by the gradual decline in prepayment headwinds, continued expansion in originated yield above 9% and the company’s hedging position.

The company expects continued earning asset yield expansion, fueled by strong pricing in auto finance, continued disciplined growth across its newer consumer portfolios and the benefit of higher interest rates.

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.

As the pandemic tailwinds normalize, delinquencies are expected to migrate above the 2019 levels. Normalized delinquencies of 3.4-3.8% are expected.

Consumer originations of more than $48 billion are expected for 2022.

The company expects a core return on tangible common equity 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?

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

The consensus estimate has shifted -32.68% due to these changes.

VGM Scores

Currently, Ally Financial has an average Growth Score of C, a grade with the same score on the momentum front. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Ally Financial has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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