On the back of its efforts to diversify revenues by enhancing digital offerings and introducing new products, Ally Financial Inc. (ALLY - Free Report) appears a solid bet now. The company’s restructuring and expansion activities bode well for the future.
Also, Ally Financial’s encouraging capital deployment activities reflect a strong balance sheet position. Further, the company has a decent earnings surprise history. It surpassed the Zacks Consensus Estimate in two of the trailing four quarters.
The company’s Zacks Consensus Estimate for the current-year earnings has been revised nearly 1% upward over the last 60 days, indicating analysts’ optimism about its earnings growth potential. As a result, the stock currently carries a Zacks Rank #2 (Buy).
Given the positive estimate revisions and a solid Zacks Rank, we expect a decent upside for the stock in the near term. Also, shares of Ally Financial have rallied 22.3% so far this year as against the industry’s decline of 2.9%.
Here are a few factors that make the stock a viable investment option.
Revenue Strength: Ally Financial’s revenues have increased at a compounded annual growth rate (CAGR) of 1% over the last four years (2013-2016). This is backed by strong originations and retail loan growth. The company’s projected sales growth of 6.2% for 2017 and 5.5% for 2018 ensures continuation of the upward revenue trend.
Earnings Growth: Ally Financial has come a long way from recording an adjusted loss in 2013 to reporting adjusted earnings of $2.16 per share in 2015. This earnings momentum is likely to continue in the near term as reflected by the company’s projected earnings per share growth of 3.2% for 2017 and 14.9% for 2018.
Capital Deployment Plan: Ally Financial has significantly improved its balance sheet and fundamentals. The company’s 2017 capital plan (approved by the Fed) includes a 50% dividend hike and $760 million share repurchase authorization. Given the capital strength and favorable dividend payout ratio, the company should be able to sustain improved capital deployments.
Stock Seems Undervalued: Ally Financial has a Value Score of A. The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Also, the company’s price/book and price/earnings (F1) ratios are below their respective industry averages.
Favorable VGM Score: Ally Financial has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.
Other Stocks Worth a Look
Some other stocks worth considering in the same industry are Credit Acceptance Corporation (CACC - Free Report) , EZCORP, Inc. (EZPW - Free Report) and FirstCash, Inc. (FCFS - Free Report) . All three stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Credit Acceptance Corporation has witnessed an upward earnings estimate revision of 6.5% for the current year, over the past 60 days. Also, its share price has rallied 39.4% over the past year.
EZCORP earnings estimates have been revised 3.9% upward for the current year in the past 60 days. Also, over the past year, its share price has increased 1.7%.
FirstCash recorded an upward earnings estimate revision of nearly 1% for the current year in the past 60 days. Also, its share price has seen a 34.4% rise over the past year.
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