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Elevated Costs, High Debt Hurt Ally Financial: Time to Sell?
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Ally Financial Inc.’s (ALLY - Free Report) bottom line might be hurt to an extent in the near term due to continuously increasing expenses. Moreover, deteriorating credit quality is a major concern for the company and makes us apprehensive about its prospects.
The Zacks Consensus Estimate for its current-year earnings has also been unchanged over the past seven days, reflecting that analysts are not that optimistic regarding its earnings growth potential. Thus, the stock currently carries a Zacks Rank #4 (Sell).
Its price performance also does not seem impressive. Shares of Ally Financial have lost 33.1% over the past six months compared with a decline of 28.4% recorded by the industry.
Looking at its fundamentals, over the last five years (ended 2019), Ally Financial’s expenses witnessed a CAGR of 5.6%, with the uptrend continuing in the first quarter of 2020. With the company launching products, seeking opportunistic buyouts and expanding into newer areas of operations; expenses are expected to remain elevated, thus, hurting profitability to some extent.
Moreover, provision for loan losses and net-charge offs (NCOs) witnessed a CAGR of 9% and 12.5%, respectively, over the last five years (2015-2019). In fact, owing to concerns related to the coronavirus outbreak, provisions and NCOs witnessed a rise in the first quarter as well. Thus, steadily deteriorating credit quality is expected to dampen the company’s financials.
Further, the presence of high levels of debt on its balance sheet makes us apprehensive. We believe that high levels of debt may negatively impact its access to liquidity and increase borrowing costs in the unsecured market. Also, the company’s current liquidity position might not be sufficient to meet debt obligations if the economic situation worsens.
Nevertheless, its efforts to diversify revenues, rise in consumer loan demand, strong balance sheet position and initiatives to expand through acquisitions will likely support profitability, going forward.
A few stocks from the finance space worth a look are mentioned below.
Merchants Bancorp’s (MBIN - Free Report) current-year earnings estimates have moved 11.9% upward over the past 60 days. The stock has appreciated 21.3% over the past three months. It currently carries a Zacks Rank #2 (Buy).
West Bancorporation’s (WTBA - Free Report) current-year earnings estimates have moved up 13.9% over the past 60 days. The company’s shares have gained 19.2% over the past three months. At present, it sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GAIN Capital Holdings’ current-year earnings estimates have moved up significantly over the past 60 days. Further, the company’s shares have gained 25.7% over the past three months. At present, it has a Zacks Rank #2.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Elevated Costs, High Debt Hurt Ally Financial: Time to Sell?
Ally Financial Inc.’s (ALLY - Free Report) bottom line might be hurt to an extent in the near term due to continuously increasing expenses. Moreover, deteriorating credit quality is a major concern for the company and makes us apprehensive about its prospects.
The Zacks Consensus Estimate for its current-year earnings has also been unchanged over the past seven days, reflecting that analysts are not that optimistic regarding its earnings growth potential. Thus, the stock currently carries a Zacks Rank #4 (Sell).
Its price performance also does not seem impressive. Shares of Ally Financial have lost 33.1% over the past six months compared with a decline of 28.4% recorded by the industry.
Looking at its fundamentals, over the last five years (ended 2019), Ally Financial’s expenses witnessed a CAGR of 5.6%, with the uptrend continuing in the first quarter of 2020. With the company launching products, seeking opportunistic buyouts and expanding into newer areas of operations; expenses are expected to remain elevated, thus, hurting profitability to some extent.
Moreover, provision for loan losses and net-charge offs (NCOs) witnessed a CAGR of 9% and 12.5%, respectively, over the last five years (2015-2019). In fact, owing to concerns related to the coronavirus outbreak, provisions and NCOs witnessed a rise in the first quarter as well. Thus, steadily deteriorating credit quality is expected to dampen the company’s financials.
Further, the presence of high levels of debt on its balance sheet makes us apprehensive. We believe that high levels of debt may negatively impact its access to liquidity and increase borrowing costs in the unsecured market. Also, the company’s current liquidity position might not be sufficient to meet debt obligations if the economic situation worsens.
Nevertheless, its efforts to diversify revenues, rise in consumer loan demand, strong balance sheet position and initiatives to expand through acquisitions will likely support profitability, going forward.
A few stocks from the finance space worth a look are mentioned below.
Merchants Bancorp’s (MBIN - Free Report) current-year earnings estimates have moved 11.9% upward over the past 60 days. The stock has appreciated 21.3% over the past three months. It currently carries a Zacks Rank #2 (Buy).
West Bancorporation’s (WTBA - Free Report) current-year earnings estimates have moved up 13.9% over the past 60 days. The company’s shares have gained 19.2% over the past three months. At present, it sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GAIN Capital Holdings’ current-year earnings estimates have moved up significantly over the past 60 days. Further, the company’s shares have gained 25.7% over the past three months. At present, it has a Zacks Rank #2.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>