It has been about a month since the last earnings report for Ally Financial (ALLY). Shares have lost about 10.1% 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 Q4 Earnings Meet Estimates, Revenues Up Y/Y
Ally Financial’s fourth-quarter 2019 adjusted earnings of 95 cents per share were in line with the Zacks Consensus Estimate. The figure reflects an increase of 3.3% from the year-ago quarter.
Results were driven by an improvement in revenues and growth in deposit balances. Also, capital ratios were impressive. However, higher non-interest expenses along with rise in provision for loan losses acted as headwinds.
After taking into consideration non-recurring items, net income available to common shareholders (GAAP basis) was $378 million or 99 cents per share, up from $290 million or 70 cents per share recorded in the prior-year quarter.
For 2019, adjusted earnings were $3.72 per share, which lagged the Zacks Consensus Estimate of $3.74. However, the bottom line was 11.4% higher than the year-ago figure. Net income available to common shareholders (GAAP basis) was $1.72 billion or $4.34 per share, increasing from $1.26 billion or $2.95 per share in 2018.
Revenues Improve, Expenses Rise
Total quarterly net revenues were $1.64 billion, up 14.3% year over year. The figure marginally beat the Zacks Consensus Estimate.
For 2019, total net revenues were $6.39 billion, up 10.2% year over year. Further, the figure surpassed the Zacks Consensus Estimate of $6.35 billion.
Total quarterly non-interest expenses increased 9.5% year over year to $880 million. The upside stemmed from an increase in all components of expenses.
Credit Quality: Mixed Bag
Non-performing loans of $1.01 billion as of Dec 31, 2019, were down 7.3% from the prior-year quarter end.
However, provision for loan losses increased 3.8% year over year to $276 million.
Balance Sheet Strong, Capital Ratios Improve
Total net finance receivables and loans amounted to $126.97 billion as of Dec 31, 2019, decreasing marginally from the previous quarter. Deposits totaled $120.75 billion, increasing 1.3% sequentially.
As of Dec 31, 2019, total capital ratio was 12.8%, improving from 12.3% from the prior-year quarter end. Tier I capital ratio was 11.2% as of Dec 31, 2019, up from 10.8% as of Dec 31, 2018.
During the fourth quarter, the company repurchased shares worth $299 million.
Management expects adjusted earnings per share growth of 10-15%.
Further, NIM is expected to increase, driven by the changes in balance sheet dynamics. Total adjusted are projected to be up in the range of 6-9%.
Adjusted efficiency ratio is anticipated to be 50-150 basis points down.
Retail auto NCO rate is projected to be at the lower end of the 1.4-1.6% range. Nonetheless, this is higher than 1.29% recorded in 2019.
Core return of tangible common equity ratio is projected to be 12-13%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Ally Financial has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Following the exact same course, 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 B. 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 this revision has been net zero. Notably, Ally Financial has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.