Ally Financial Inc. (NYSE: $ALLY) is one of the biggest car finance companies in the US. The company is considered one of the biggest banks in the US by assets and has 3 million depositors.
Ally Financial Earnings Report
On Friday, January 19, 2024, before the opening bell, Ally Financial released its Q4 and full-year earnings report, which topped earnings estimates. It reported a pre-tax net income of $76 million and a diluted EPS of $0.16.
Its adjusted EPS of $0.45 beats the analysts’ estimates of $0.44. Total revenue for Q4 was $2.1 billion, beating estimates of $1.99 billion. However, the reported consumer auto-loan originations of $9.6 billion missed the $9.69 estimate.
For FY23, the company reported a total net revenue of $8.2 billion, a net income of $1 billion, and a diluted EPS of $2.98. It reported 13.8 million in consumer auto applications, which drove $40 billion in origination volume. It also reported $1.3 billion in insurance earned premiums, the highest since its IPO.
The company reported that retail deposits grew by $2.2 billion in Q4 from 3 million retail deposit customers to $142.3 billion. Additionally, it reported that it had $155 billion in total deposits. According, to the report, it had 1.2 million active credit holders. It also reported a Corporate Finance HFI loan portfolio of $10.9 billion with 25% ROE in 2023, with less than 1% of these loans in nonaccrual status.
Additionally, the company announced that the workforce cuts announced in Q3 had been realized, leading to $80 million in annualized expense savings.
Agreement to Sell Ally Lending
In its earnings presentation, Ally Financial revealed it had agreed to sell its point-of-sale financing segment, Ally Lending, to Synchrony Financial. This sale will include $2.2 billion of loan receivables. The portfolio includes relationships with around 2,500 merchant locations and over 450,000 active healthcare and home improvement service borrowers.
According to Synchrony, the deal will allow them to offer installment loans and revolving credit to customers at the point of sale. Point-of-sale financing is similar to popular buy-now-pay-later loans, often used to finance large purchases with longer repayment periods.
Ally Financial expects the deal to close in Q1 2024, increasing its Common Equity Tier 1 ratio (CET1) by around 15 basis points.
Ally Financial Company Outlook
For most of 2023, several auto lenders have pulled back from various segments. In December 2023, Russ Hutchison, the company’s CFO, said the move had been favorable to them. He noted that almost 40% of all their auto-loan originations had been customers with a top-tier credit rating.
The company appointed interim CEO Doug Timmerman as they look for replacement for Brown, who is joining Hendrick Automotive Group as president. Ally Financial has been working to cut costs, including pausing new hires and cutting jobs in Q3.
In Q4, the net interest margin was 3.17%, topping estimates of 3.2%. For 2024, the company projects a NIM of 3.25%-3.3%. The company forecasts revenue will rise by up to 10%
Stock Performance
Ally Financial stock was up 9.80% at 11:47 AM in New York on January 19, 2024. The stock was valued at $35.28 per share. Over the past 12 months, the stock has risen by 34.78%.
Stock Forecast
Analysts are bullish on ALLY stock, giving it a moderate buy rating. They have given the stock a broad target range of $51 to $23.20. Their median target for the stock is $37, a 4.70% upside based on the most recent price. Regarding EPS, analysts forecast a range of $0.51 to $1.42, with a consensus estimate of $0.88 for Q1 2024. They project sales of $2-$2.3 billion in Q1 2024, with a consensus of $2.2 billion.
Should You Buy ALLY Stock?
One of the reasons to consider ALLY stock is the company’s shareholder-friendly policy on capital allocation. In its latest earnings report, the company announced a 1Q ’24 common dividend of $0.30 per share. Its dividend yield is 3.73%, which is quite impressive compared to the average yield of 3.11% in the financial services sector. Additionally, the company often engages in share buybacks, positively impacting EPS.
Looking at the fundamentals, Ally Financial has consistently grown its customer base for the past four years. Additionally, its deposits continue to expand and stand at $155 billion as of the last reported quarter. These deposits are a reliable source of capital for auto-loans, its primary revenue source.
However, the company’s business model relies heavily on a single product: auto-loans, which account for nearly half of its total earning assets. Consequently, it is vulnerable to rising interest rates, supply chain constraints, gas prices, and car pricing.
Despite this, based on its recent numbers and focus on borrowers with high creditworthiness, Ally Financial is currently on solid ground. As such, consider adding the stock to your portfolio.
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