On Monday, BTIG reiterated a Neutral rating on Ally Financial (NYSE: NYSE:ALLY) shares, citing challenges in the near term regarding the company's credit trends and net interest margins. According to the firm's analysis, Ally Financial is expected to face significant quarter-over-quarter increases in net losses for the fourth quarter of 2024, along with a continued reduction in net interest margins.
The firm anticipates some improvement in these metrics in the first quarter of 2025 but does not expect these changes to clearly indicate an underlying improvement in Ally's underwriting and asset/liability mix until at least mid-2025.
BTIG points out that while Ally Financial's management has given cautious commentary on its business, other large banks have shown a more positive outlook despite reporting rising delinquencies and higher credit loss reserves. This optimism from other banks has been enough to boost their shares, a contrast to the performance of Ally's stock.
The firm notes that Ally Financial's financial metrics appear to be more de-risked than its peers, yet the market may continue to penalize the company until it can present a more positive narrative about its financial trends.
In the review of third-quarter 2024 earnings, BTIG highlights that the only significant surprise from Ally's earnings, updated 2024 guidance, and conference call was the magnitude of the fourth-quarter 2024 retail auto net charge-offs (NCOs).
The firm has calculated a 2.75% NCO for the fourth quarter of 2024, which implies an annualized NCO run-rate of 2.40% as Ally enters 2025. Consequently, BTIG has adjusted its full-year 2025 retail NCO estimate to 2.27%.
Regarding valuation, BTIG suggests that under typical circumstances, an 8x price-to-earnings (P/E) multiple on 2025 earnings per share (EPS) would be appropriate. However, the firm expresses low confidence in the presence of upside catalysts for Ally Financial's shares until at least the 2025 guidance is provided in the fourth quarter of 2024.
The firm's stance is that it is more prudent to wait on Ally Financial's shares rather than buy at the current time, despite the recent weakness in the stock's performance.
In other recent news, Ally Financial has reported its third-quarter 2024 earnings, revealing an adjusted earnings per share (EPS) of $0.95. This outcome was significantly influenced by tax credits related to electric vehicle lease volumes.
Despite facing challenges such as interest rate volatility and inflationary pressures, the company managed to originate $9.4 billion in consumer loans in its auto segment. However, retail deposits saw a decline of $600 million in the quarter.
Raymond James, an independent firm, recently upgraded Ally Financial's stock from Underperform to Market Perform. This decision was based on the belief that the stock has already experienced the bulk of its underperformance, despite the firm maintaining a cautious stance on Ally Financial.
The company also updated its 2024 net interest margin outlook to approximately 3.2%, anticipating a 50 basis point Federal Reserve rate decrease by year-end.
In other company news, Ally Financial announced a quarterly dividend of $0.30 for Q4 2024. The company's insurance segment reached a record $384 million in premiums, and electric vehicle lease originations accounted for 12% of total origination volume. These recent developments reflect Ally Financial's ongoing efforts to navigate the current economic environment through disciplined capital deployment and expense management.
InvestingPro Insights
Recent InvestingPro data provides additional context to BTIG's analysis of Ally Financial (NYSE: ALLY). The company's market cap stands at $10.67 billion, with a P/E ratio of 13.94, suggesting a relatively modest valuation in line with BTIG's cautious stance. Ally's revenue for the last twelve months as of Q3 2024 was $6.76 billion, with a revenue growth decline of 8.04% over the same period, reflecting the challenges mentioned in the article.
InvestingPro Tips highlight that Ally has maintained dividend payments for 9 consecutive years, which could be attractive to income-focused investors despite the current headwinds. However, the tip that 8 analysts have revised their earnings downwards for the upcoming period aligns with BTIG's concerns about near-term performance.
The company's price has fallen significantly over the last three months, with a -15.8% total return, potentially reflecting the market's reaction to the anticipated challenges in credit trends and net interest margins. Despite this, Ally has shown a high return over the last year, with a 50.76% price total return, indicating potential volatility and the possibility of recovery that investors should consider.
For readers seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Ally Financial, providing a deeper understanding of the company's financial position and market outlook.
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