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Revenue Diversification Aids Ally Financial (ALLY), Costs Ail
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Ally Financial Inc.’s (ALLY - Free Report) inorganic growth efforts, along with its revenue diversification initiatives, are expected to keep supporting financials. Given its robust capital and liquidity positions, the company will likely be able to sustain efficient capital deployments in the future.
Analysts are optimistic regarding Ally Financial’s earnings growth potential. The Zacks Consensus Estimate for ALLY’s 2023 earnings has been revised 2.3% upward over the past 60 days.
Over the past six months, shares of Ally Financial have gained 14.6% compared with the industry’s 19.2% growth.
Image Source: Zacks Investment Research
However, elevated expenses are expected to hurt the company’s bottom line. Deteriorating credit quality is another concern. Thus, the company currently carries a Zacks Rank #3 (Hold).
Looking at its fundamentals, ALLY’s net financing revenues (one of the key sources of revenues) witnessed a compound annual growth rate (CAGR) of 9.8% over the last seven years (2016-2022). While the metric declined in the first quarter of 2023, the same will likely be positively impacted in the near term, given the strong origination volumes, retail loan growth and rise in deposit balances. According to our estimates, net financing revenues will witness a CAGR of 2.4% over the three years ended 2025.
While the company’s net interest margin (NIM) declined in 2020 because of lower rates, the same increased in 2021 and 2022. While NIM declined year over year in the first quarter of 2023, the same is expected to improve in the near term to some extent, given the Federal Reserve’s policy to keep interest rates high. Notably, management expects NIM to be close to 3.5% in 2023. Beyond that, NIM is expected to reach 4%.
As part of its strategy to diversify into banking products, Ally Financial has forayed into the mortgage business, which is supporting its earnings. The company has been making efforts to enhance digital offerings and introduce new products to further boost profitability. Its wealth management and online brokerage initiatives related to credit card offerings are impressive.
The acquisitions of Fair Square Financial (a credit card provider), TradeKing and Health Credit Services (a point-of-sale payment provider) will likely help improve the company’s product offerings.
However, over the last seven years (ended 2022), the company’s expenses witnessed a CAGR of 8.1%. The uptrend in costs continued in the first three months of 2023. With the company launching products, seeking opportunistic buyouts and expanding into newer areas of operations, expenses are expected to remain elevated. We project total non-interest expenses to rise 5.7% in 2023, 9.1% in 2024 and 6.5% in 2025 on a year-over-year basis.
Poor asset quality is another headwind for Ally Financial. Although the company’s net-charge offs (NCOs) declined in 2020 and 2021, it witnessed year-over-year increases in 2022 and the first quarter of 2023. Per our estimates, NCOs will rise 86.2% in 2023 on a year-over-year basis.
Moreover, the company’s provision for loan losses has been volatile (increasing in 2020, falling in 2021 and rising again in 2022 and the first quarter of 2023). We project provision for loan losses to increase 10.7% in 2023.
Stocks Worth a Look
A couple of better-ranked stocks from the same space are World Acceptance Corporation (WRLD - Free Report) and Open Lending Corporation (LPRO - Free Report) .
The Zacks Consensus Estimate for WRLD’s current fiscal-year earnings has moved 42.4% higher over the past 60 days. Its shares have soared 113.1% in the past six months. Currently, WRLD sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
LPRO carries a Zacks Rank #2 (Buy) at present. Its earnings estimates for 2023 have been revised 15.6% upward over the past 60 days. In the past six months, LPRO’s shares have rallied 60.4%.
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Revenue Diversification Aids Ally Financial (ALLY), Costs Ail
Ally Financial Inc.’s (ALLY - Free Report) inorganic growth efforts, along with its revenue diversification initiatives, are expected to keep supporting financials. Given its robust capital and liquidity positions, the company will likely be able to sustain efficient capital deployments in the future.
Analysts are optimistic regarding Ally Financial’s earnings growth potential. The Zacks Consensus Estimate for ALLY’s 2023 earnings has been revised 2.3% upward over the past 60 days.
Over the past six months, shares of Ally Financial have gained 14.6% compared with the industry’s 19.2% growth.
Image Source: Zacks Investment Research
However, elevated expenses are expected to hurt the company’s bottom line. Deteriorating credit quality is another concern. Thus, the company currently carries a Zacks Rank #3 (Hold).
Looking at its fundamentals, ALLY’s net financing revenues (one of the key sources of revenues) witnessed a compound annual growth rate (CAGR) of 9.8% over the last seven years (2016-2022). While the metric declined in the first quarter of 2023, the same will likely be positively impacted in the near term, given the strong origination volumes, retail loan growth and rise in deposit balances. According to our estimates, net financing revenues will witness a CAGR of 2.4% over the three years ended 2025.
While the company’s net interest margin (NIM) declined in 2020 because of lower rates, the same increased in 2021 and 2022. While NIM declined year over year in the first quarter of 2023, the same is expected to improve in the near term to some extent, given the Federal Reserve’s policy to keep interest rates high. Notably, management expects NIM to be close to 3.5% in 2023. Beyond that, NIM is expected to reach 4%.
As part of its strategy to diversify into banking products, Ally Financial has forayed into the mortgage business, which is supporting its earnings. The company has been making efforts to enhance digital offerings and introduce new products to further boost profitability. Its wealth management and online brokerage initiatives related to credit card offerings are impressive.
The acquisitions of Fair Square Financial (a credit card provider), TradeKing and Health Credit Services (a point-of-sale payment provider) will likely help improve the company’s product offerings.
However, over the last seven years (ended 2022), the company’s expenses witnessed a CAGR of 8.1%. The uptrend in costs continued in the first three months of 2023. With the company launching products, seeking opportunistic buyouts and expanding into newer areas of operations, expenses are expected to remain elevated. We project total non-interest expenses to rise 5.7% in 2023, 9.1% in 2024 and 6.5% in 2025 on a year-over-year basis.
Poor asset quality is another headwind for Ally Financial. Although the company’s net-charge offs (NCOs) declined in 2020 and 2021, it witnessed year-over-year increases in 2022 and the first quarter of 2023. Per our estimates, NCOs will rise 86.2% in 2023 on a year-over-year basis.
Moreover, the company’s provision for loan losses has been volatile (increasing in 2020, falling in 2021 and rising again in 2022 and the first quarter of 2023). We project provision for loan losses to increase 10.7% in 2023.
Stocks Worth a Look
A couple of better-ranked stocks from the same space are World Acceptance Corporation (WRLD - Free Report) and Open Lending Corporation (LPRO - Free Report) .
The Zacks Consensus Estimate for WRLD’s current fiscal-year earnings has moved 42.4% higher over the past 60 days. Its shares have soared 113.1% in the past six months. Currently, WRLD sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
LPRO carries a Zacks Rank #2 (Buy) at present. Its earnings estimates for 2023 have been revised 15.6% upward over the past 60 days. In the past six months, LPRO’s shares have rallied 60.4%.