It seems to be a wise decision to add Ally Financial (ALLY - Free Report) stock to your portfolio now, given the company’s efforts to diversify revenues by enhancing digital offerings and introducing new products. Also, its restructuring and expansion activities as well as higher interest rates bode well for the future.
Further, analysts are bullish on the stock. The Zacks Consensus Estimate for the company’s earnings has been revised 1.3% upward over the past 30 days for 2018. As a result, the stock currently carries a Zacks Rank #2 (Buy).
The company’s price performance seems impressive as well. Over the past two years, the stock has gained 23.6% against 14.5% decline of the industry it belongs to.
Two-Years Price Performance
Reasons to Buy Ally Financial Stock
Earnings growth: Ally Financial witnessed earnings growth of 43.8% over the past three to five years against 0.1% growth of the industry. This earnings momentum is likely to continue in the near term as reflected by the projected earnings per share growth of 35.6% for 2018 and 10.7% for 2019.
Notably, management projects adjusted earnings to grow 35-40% in 2018 on a year-over-year basis.
Moreover, Ally Financial has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 13.1%.
Further, the long-term (three-five years) projected earnings growth rate of 12.7% promises rewards for shareholders.
Revenue strength: Backed by strong originations and retail loan growth, Ally Financial’s revenues witnessed a CAGR of 17.4% over the last six years (2012-2017). Further, the company has been witnessing a steady improvement in net interest margin over the last several years.
Additionally, as part of its strategy to diversify into banking products, Ally Financial is making efforts to enhance its digital offerings and introduce new products to further boost profitability. Also, the wealth management and online brokerage initiatives related to the credit card offerings are on track.
Its projected sales growth rate of 1.6% for 2018 and 7.1% for 2019 ensures continuation of the upward revenue trend.
Efficient capital deployment plan: Ally Financial has significantly improved its balance sheet and fundamentals. The company’s 2018 capital plan (approved by the Federal Reserve) included a 15.4% dividend hike and $1-billion share repurchase authorization. Given the capital strength and favorable dividend payout ratio, the company will likely be able to sustain improved capital deployments.
Stock seems undervalued: With respect to the price/book and price/earnings ratios, Ally Financial seems undervalued. It has a P/B ratio of 0.78 and a P/E (F1) ratio of 7.65, both falling below the respective industry averages of 1.10 and 8.28.
Also, the stock 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.
Other Stocks Worth a Look
Some other stocks worth considering in the finance space are Credit Acceptance Corporation (CACC - Free Report) , Enova International, Inc. (ENVA - Free Report) and Zions Bancorporation (ZION - Free Report) .
Credit Acceptance Corporation has witnessed an upward earnings estimate revision of 3.4% for the current year, over the past 60 days. Also, its share price has jumped 83.4% over the past two years. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Enova International’s earnings estimates have been revised 2.8% upward for the current year in the past 60 days. Over the past two years, Zacks Rank #1 stock, has surged 57.8%.
Zions has recorded an upward earnings estimate revision of 3.3% for the current year in the past 60 days. Its share price has witnessed a 6.2% rise over the past two years. The stock carries a Zacks Rank #2.
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