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Why Is Ally Financial (ALLY) Up 10.3% Since Last Earnings Report?
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It has been about a month since the last earnings report for Ally Financial (ALLY - Free Report) . Shares have added about 10.3% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.
Ally Financial Beats on Q3 Earnings Despite Higher Costs
Ally Financial’s third-quarter 2023 adjusted earnings of 83 cents per share surpassed the Zacks Consensus Estimate of 80 cents. The bottom line reflects a decline of 25.9% from the year-ago quarter.
Results were primarily aided by an improvement in other revenues. A decent increase in loans was another tailwind. However, a decline in net financing revenues, along with higher expenses and provisions, were the undermining factors.
After considering non-recurring items, net income available to common shareholders (on a GAAP basis) was $269 million compared with $272 million in the prior-year quarter. Our estimate for the metric was $255 million.
Revenues Decline, Expenses Rise
Total GAAP net revenues were $1.97 billion, down 2.4% from the prior-year quarter. Also, the top line missed the Zacks Consensus Estimate of $2.04 billion.
Net financing revenues were down 10.8% from the prior-year quarter to $1.53 billion. The decline was primarily due to a drastic rise in interest on deposits. Our estimate for net financing revenues was $1.52 billion.
The adjusted net interest margin was 3.26%, down 57 basis points year over year.
Total other revenues were $435 million, up 46.5% from the prior-year quarter. We had projected other revenues of $498.9 million.
Total non-interest expenses increased 6.1% year over year to $1.23 billion. The upswing stemmed from higher insurance losses and loss-adjustment expenses, and other operating expenses. Our estimate for expenses was $1.22 billion.
The adjusted efficiency ratio was 52.1%, up from 48.2% in the year-ago period. A rise in the efficiency ratio indicates a deterioration in profitability.
Credit Quality Worsens
Non-performing loans were $1.50 billion as of Sep 30, 2023, up 8.5% year over year. Our estimate for the metric was $1.58 billion.
In the reported quarter, the company recorded net charge-offs of $456 million, up 65.2% from the prior-year quarter. We had projected net charge-offs of $423.4 million. The company also reported a provision for loan losses of $508 million, up 16% from the prior-year quarter. Our estimate for provisions was $452.7 million.
Loan Balances Increase, Deposits Fall Marginally
As of Sep 30, 2023, total net finance receivables and loans amounted to $136.42 billion, up 1.3% from the prior-quarter end. Our estimate for the metric was $135.3 billion. Deposits decreased marginally from the prior-quarter end to $152.84 billion. We had projected deposits of $151.3 billion.
Capital Ratios Mixed
As of Sep 30, 2023, the total capital ratio was 12.5%, up from 12.4% in the prior-year quarter. The tier I capital ratio was 10.7%, down from 10.8% as of Sep 30, 2022.
Share Repurchase Update
In the reported quarter, the company did not repurchase any shares.
Outlook
NIM is expected to be more than 3.3% in 2023. Beyond that, NIM is expected to reach 4%.
Other revenues are projected to be $500 million in each of the quarters of 2023. For the full year, other revenues are expected to be somewhere near $1.9 billion.
The company remains focused on diligent expense management and the pace of expense increase is expected to decline in the quarters ahead.
The company’s workforce reduction initiative is expected to drive $80 million in annualized savings heading into 2024.
In 2024, controllable expense growth of less than 1% is expected. Total expense growth is expected to be 2%.
2023 adjusted non-interest expenses are expected to be a little over $4.9 billion. In 2024, expenses of nearly $5 billion are expected.
The company has not reinvested in the AFS portfolio in over a year and hence expects natural OCI accretion of around $500 million after-tax annually.
Retail auto portfolio yields are expected to reach 9% by the end of fourth-quarter 2023.
Used-car values are expected to decline 4% in the fourth quarter of 2023.
In 2023, retail auto NCOs of 1.8% is expected.
Consumer auto originations in the $40 billion range are expected to be generated in 2023.
The tax rate is anticipated to be closer to 18% in the fourth quarter of 2023. For full-year 2023, tax rate is anticipated to be 9%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -9.81% due to these changes.
VGM Scores
Currently, Ally Financial has a poor Growth Score of F, 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 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
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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Why Is Ally Financial (ALLY) Up 10.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Ally Financial (ALLY - Free Report) . Shares have added about 10.3% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.
Ally Financial Beats on Q3 Earnings Despite Higher Costs
Ally Financial’s third-quarter 2023 adjusted earnings of 83 cents per share surpassed the Zacks Consensus Estimate of 80 cents. The bottom line reflects a decline of 25.9% from the year-ago quarter.
Results were primarily aided by an improvement in other revenues. A decent increase in loans was another tailwind. However, a decline in net financing revenues, along with higher expenses and provisions, were the undermining factors.
After considering non-recurring items, net income available to common shareholders (on a GAAP basis) was $269 million compared with $272 million in the prior-year quarter. Our estimate for the metric was $255 million.
Revenues Decline, Expenses Rise
Total GAAP net revenues were $1.97 billion, down 2.4% from the prior-year quarter. Also, the top line missed the Zacks Consensus Estimate of $2.04 billion.
Net financing revenues were down 10.8% from the prior-year quarter to $1.53 billion. The decline was primarily due to a drastic rise in interest on deposits. Our estimate for net financing revenues was $1.52 billion.
The adjusted net interest margin was 3.26%, down 57 basis points year over year.
Total other revenues were $435 million, up 46.5% from the prior-year quarter. We had projected other revenues of $498.9 million.
Total non-interest expenses increased 6.1% year over year to $1.23 billion. The upswing stemmed from higher insurance losses and loss-adjustment expenses, and other operating expenses. Our estimate for expenses was $1.22 billion.
The adjusted efficiency ratio was 52.1%, up from 48.2% in the year-ago period. A rise in the efficiency ratio indicates a deterioration in profitability.
Credit Quality Worsens
Non-performing loans were $1.50 billion as of Sep 30, 2023, up 8.5% year over year. Our estimate for the metric was $1.58 billion.
In the reported quarter, the company recorded net charge-offs of $456 million, up 65.2% from the prior-year quarter. We had projected net charge-offs of $423.4 million. The company also reported a provision for loan losses of $508 million, up 16% from the prior-year quarter. Our estimate for provisions was $452.7 million.
Loan Balances Increase, Deposits Fall Marginally
As of Sep 30, 2023, total net finance receivables and loans amounted to $136.42 billion, up 1.3% from the prior-quarter end. Our estimate for the metric was $135.3 billion. Deposits decreased marginally from the prior-quarter end to $152.84 billion. We had projected deposits of $151.3 billion.
Capital Ratios Mixed
As of Sep 30, 2023, the total capital ratio was 12.5%, up from 12.4% in the prior-year quarter. The tier I capital ratio was 10.7%, down from 10.8% as of Sep 30, 2022.
Share Repurchase Update
In the reported quarter, the company did not repurchase any shares.
Outlook
NIM is expected to be more than 3.3% in 2023. Beyond that, NIM is expected to reach 4%.
Other revenues are projected to be $500 million in each of the quarters of 2023. For the full year, other revenues are expected to be somewhere near $1.9 billion.
The company remains focused on diligent expense management and the pace of expense increase is expected to decline in the quarters ahead.
The company’s workforce reduction initiative is expected to drive $80 million in annualized savings heading into 2024.
In 2024, controllable expense growth of less than 1% is expected. Total expense growth is expected to be 2%.
2023 adjusted non-interest expenses are expected to be a little over $4.9 billion. In 2024, expenses of nearly $5 billion are expected.
The company has not reinvested in the AFS portfolio in over a year and hence expects natural OCI accretion of around $500 million after-tax annually.
Retail auto portfolio yields are expected to reach 9% by the end of fourth-quarter 2023.
Used-car values are expected to decline 4% in the fourth quarter of 2023.
In 2023, retail auto NCOs of 1.8% is expected.
Consumer auto originations in the $40 billion range are expected to be generated in 2023.
The tax rate is anticipated to be closer to 18% in the fourth quarter of 2023. For full-year 2023, tax rate is anticipated to be 9%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -9.81% due to these changes.
VGM Scores
Currently, Ally Financial has a poor Growth Score of F, 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 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
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ally Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.