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Ally Financial (ALLY): Pre-Earnings Buying Signals in Focus

Ally Financial (ALLY) has demonstrated a commendable trend of surpassing earnings estimates over the last two consecutive quarters, but its mixed fundamentals pose challenges. As the company gears up to announce its fiscal fourth-quarter earnings, could the stock be a wise investment? Read more to find out…

Ally Financial Inc. (ALLY) is a digital financial services company offering a diverse array of innovative financial products and services to individuals, businesses, and corporate customers, primarily in the United States and Canada.

The company is scheduled to announce its fourth quarter and full year 2023 financial results (ended December 2023) on Friday, January 19, 2024. For the fourth quarter, Wall Street predicts the company’s EPS to come in at $0.45, reflecting a 58% year-over-year decline. While the consensus revenue estimate of $2 billion for the same quarter, indicates a 9.4% year-over-year plunge.

Meanwhile, ALLY’s third-quarter performance revealed a drop in its topline, failing to surpass street estimates. Interestingly, though, during the same quarter, despite experiencing a year-over-year decline, the company's EPS managed to exceed Street estimates.

The company’s net financing revenue for the third quarter amounted to $1.53 billion, witnessing a notable 10.8% year-over-year decline, primarily driven by higher funding costs. Moreover, the company’s attributable profit for the quarter dropped slightly, influenced by factors such as reduced net financing revenue, heightened provision for credit losses, and elevated non-interest expenses.

On top of it, in a strategic response to navigate challenges arising from inflation, increased interest rates, and economic uncertainties, ALLY announced on October 2, 2023, its decision to implement job cuts across its multiple divisions, impacting approximately 5% of its workforce.

Nevertheless, despite the gloomy financials and economic turbulences faced by the company last year, on January 16, 2024, the company’s board of directors declared a quarterly dividend of $0.30 per share of the company's common stock, payable to its shareholders on February 15, 2024.

The company’s annual dividend of $1.20 translates to a 3.63% yield on the prevailing prices, while its four-year average dividend yield is 3.13%. Its dividend payouts have grown at a CAGR of 16.5% over the past three years.

Furthermore, ALLY’s commitment to leveraging the capabilities of Artificial Intelligence (AI) is evident from the launch of on September 19, 2023. This proprietary, cloud-based AI platform combines the capabilities of conventional and generative AI tools, encompassing foundational models.

It also integrates a specialized human touch and data security measures, which is crucial for a financial services company. With an unwavering dedication to customer-centric values, ALLY aims to integrate generative AI to enhance its vision of the evolving landscape in digital banking.

In terms of price performance, the company’s shares surged 31.5% over the past three months but plunged 5.3% over the past month to close the last trading session at $33.04.

Here are the financial aspects of ALLY that could influence its performance in the near term:

Mixed Financials

For the fiscal third quarter, which ended on September 30, 2023, ALLY’s total net revenue declined 2.4% year-over-year to $1.97 billion, while its attributable net income plunged 1.1% from the year-ago value to $269 million. Also, its adjusted EPS came in at $0.83, down 13.5% from the prior-year quarter.

On the other hand, during the same quarter, the company’s total cash and cash equivalents amounted to $8.52 billion, increasing 52.8% compared to $5.57 billion as of December 31, 2022.

Unoptimistic Analyst Estimates

The consensus revenue estimate of $8.14 billion for the fiscal year ended December 2023, representing a 3.4% year-over-year decline. Meanwhile, the consensus EPS estimate of $3.05 for the same period reflects a 49.7% year-over-year plunge.

Mixed Profitability

The stock’s trailing-12-month cash per share of $28.23 is 325.2% higher than the $6.64 industry average. Likewise, its trailing-12-month CAPEX/Sales of 38.97% is significantly higher than the industry average of 1.98%.

However, ALLY’s trailing-12-month Return On Total Assets (ROTA) of 0.62% is 46.1% lower than the 1.16% industry average. Furthermore, its trailing-12-month net income margin of 16.61% is 33.9% lower than the industry average of 25.13%.

POWR Ratings Exhibit Uncertainty

ALLY’s fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ALLY has a D grade for Sentiment, justified by its pessimistic analyst estimates for the fiscal year ended December 2023. Moreover, ALLY’s C grade for Quality is consistent with its mixed profitability metrics.

In the Consumer Financial Services industry, ALLY is ranked #39 out of the 47 stocks.   

Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, and Stability. Get all ratings of ALLY here.

Bottom Line

While ALLY boasts strengths such as an attractive dividend yield and AI integration, the company's future performance is clouded by its mixed fundamentals and unoptimistic analyst estimates. Therefore, it might be prudent for investors to await a more favorable entry point for this stock.

How Does Ally Financial Inc. (ALLY) Stack Up Against Its Peers?   

While ALLY has an overall grade of C, equating to a Neutral rating, you may also check out these other stocks within the Consumer Financial Services industry: Regional Management Corp. (RM), Qifu Technology, Inc. (QFIN), and World Acceptance Corporation (WRLD), with A (Strong Buy) and B (Buy) ratings. For exploring more Consumer Financial Services stocks, click here.    

What To Do Next?

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10 Stocks to SELL NOW! >

ALLY shares were unchanged in premarket trading Wednesday. Year-to-date, ALLY has declined -5.38%, versus a -0.08% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Mukherjee

Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.


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