On Tuesday, Truist Securities began coverage on Ally Financial (NYSE:ALLY) shares, assigning a Buy rating and setting a price target of $42.00. The initiation follows a period of challenges for the company, including increased guidance on losses and concerns about the path to net interest margin (NIM) expansion.
Despite these issues, Truist Securities sees potential for a rebound in Ally Financial's stock value. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculation, with analysts projecting the company will remain profitable this year.
Ally Financial, a bank with a market capitalization of $11 billion, specializes in auto lending and consumer direct deposits. With only about 5% of the market share in a highly fragmented auto lending industry, Ally maintains a significant presence.
Trading at a P/B ratio of 0.89x and a P/E of 14.3x, the stock offers value characteristics that InvestingPro subscribers can explore in detail through comprehensive Pro Research Reports. The analyst at Truist Securities noted that the company's stock is currently trading at a 10% discount to its tangible book value. However, there is an expectation of approximately 20% growth in Ally's tangible book over the next two years as bond losses recover.
The report also highlighted some competitive advantages that could help Ally Financial correct its credit course with minimal impact on volume. Truist Securities predicts a 15% or more upside for the stock over the next two years, anticipating a re-rating to 1x its 2026 tangible book value. The company has maintained dividend payments for 9 consecutive years, currently offering a 3.31% yield, demonstrating commitment to shareholder returns despite market challenges.
The analyst's commentary underscores the potential for Ally to navigate through its recent rough patch. "We are Buy on Ally. It has been a rough ride recently with the company guiding losses higher and opening the door to a shakier path for NIM expansion," said the analyst from Truist Securities. "That said, it now trades at a (10)% discount to current tangible, and we expect Ally's tangible book to grow by ~20% over the next two years as bond losses heal."
The report also suggests that Ally Financial is well-positioned to take advantage of competitive tailwinds, which could facilitate a recovery in stock value. "In addition, there is some wind at their back competitively which should allow them to course correct on credit with manageable volume fallout," the analyst added.
Investors will be watching closely to see if Ally Financial can leverage its position in the auto lending market and capitalize on the growth and competitive advantages outlined by Truist Securities. With an overall Financial Health Score of "FAIR" from InvestingPro, which analyzes multiple factors including profitability, cash flow, and relative value, the company shows potential for sustainable growth.
In other recent news, Ally Financial has undergone an executive transition with Jason E. Schugel stepping down as Chief Risk Officer to become Senior Operating Adviser, and Stephanie N. Richard filling his previous role.
The company also reported strong third-quarter earnings, with an adjusted earnings per share (EPS) of $0.95, largely due to tax credits from electric vehicle leases. Analyst firms such as Citi, TD Cowen, and Janney have reacted to these developments, with Citi raising its price target to $55.00 and TD Cowen maintaining a hold rating on Ally Financial shares.
Janney, despite reducing their price target from $40 to $39, continues to advocate a buy rating for the company's stock. Ally Financial's recent developments also include a quarterly dividend announcement of $0.30 for Q4 2024, and its insurance segment reaching a record $384 million in premiums.
However, the company saw a decline of $600 million in retail deposits in the quarter. These recent developments provide valuable insights for investors interested in Ally Financial's performance and future prospects.
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