A months have passed since Ally Financial’s last earnings report (ALLY). Stocks rose about 7.2% during that time, outperforming the S&P 500.
Will the recent positive trend continue until its next earnings release, or is Ally Financial likely to experience a pullback? Before we dive into how investors and analysts have reacted in recent times, let’s take a quick look at his latest earnings report to better understand the important catalysts.
Ally Financial Q4 Earnings and Revenue Exceed Estimates, Costs Increase Year-on-Year
Ally Financial’s adjusted fourth quarter 2020 earnings of $ 1.60 per share significantly exceeded Zacks’ consensus estimate of $ 1.05. In addition, net income jumped 68.4% from a year ago.
Results benefited from revenue growth and lower provisions, partially offset by higher expenses. In addition, the balance sheet position remained strong during the quarter.
After examining non-recurring items, net income available to common shareholders (on a GAAP basis) was $ 687 million or $ 1.82 per share, compared to $ 387 million or 99 cents per share in the quarter of l ‘last year.
In 2020, adjusted earnings per share of $ 3.03 decreased 18.5% year on year. Net income available to common shareholders (on a GAAP basis) was $ 1.09 billion or $ 2.88 per share, down from $ 1.72 billion or $ 4.34 per share in 2019.
Income improves, expenses increase
Total net income for the reported quarter was $ 1.98 billion, up 20.6% year-over-year. The figure also exceeded Zacks’ consensus estimate of $ 1.66 billion.
In 2020, total net income increased 4.6% from the previous year to $ 6.69 billion.
Net financing income increased 12.7% from the previous year to $ 1.30 billion. The increase was driven by higher earnings on non-lease vehicles, higher retail revenues and lower financing costs. These were partially offset by higher amortization of mortgage premiums and lower balance and performance in the commercial auto portfolio.
The adjusted net interest margin was 2.92%, up 26 basis points (bps) year over year.
Total other income of $ 678 million improved 39.2%.
Total non-interest expense increased 16.3% to $ 1.02 billion. The recovery is explained by an increase in all cost components.
The adjusted efficiency ratio at the end of the fourth quarter was 49.8%, up slightly from 49.4% a year earlier. An increase in the efficiency ratio indicates a deterioration in profitability.
Credit grade: Mixed bag
Non-performing loans of $ 1.52 billion as of December 31, 2020, were up 46.9% year-over-year. However, the net depreciation rate stood at 0.67%, down 24 basis points. In addition, the allowance for loan losses decreased 63% to $ 102 million.
Strong balance sheet, capital ratios improve
Total net financial receivables and loans stood at $ 115.3 billion as of December 31, 2020, increasing slightly from the third quarter. Deposits totaled $ 137 billion, up 1.6%.
As of December 31, 2020, the total capital ratio was 14.1%, compared to 12.8% in the quarter of the previous year. The Tier I capital ratio was 12.4%, compared to 11.2% as at December 31, 2019.
Management expects organic loan growth to continue in the near term.
The company expects further expansions of more than 3% to drive net fundraising revenue growth at the teenage rate on an annual basis.
Other adjusted revenues are expected to grow steadily, driven by consumer offerings and continued expansion in insurance.
On expectations of stable asset returns, the fall in the cost of funds and liability management; NIM will likely continue to grow in 2021 and beyond.
Retail auto yields in 2021 are expected to be in the 6% average range and used car values are expected to decline 3% on an annual basis.
NCOs are expected to peak in 2021 but then stabilize in 2022 and 2023.
The company expects positive operating leverage and improved efficiency in 2021.
He expects the return on tangible equity (ROTCE) to increase to 12% in 2021 and then extend into mid-teens in 2022 and 2023.
How have the estimates evolved since then?
Over the past month, investors have seen an upward trend in revised estimates. The consensus estimate has changed 9.09% due to these changes.
Right now, Ally Financial has a Growth Score below D, a rating with the same score on the momentum front. However, the stock was given an A rating on the value side, which places it in the top 20% for this investment strategy.
Overall, the stock has an overall VGM score of C. If you’re not strategy-focused, this score is the one you should be interested in.
Estimates are broadly trending upward for the stock, and the magnitude of these revisions looks promising. It’s no surprise that Ally Financial has a Zacks Rank # 2 (Buy). We expect an above-average return on the security over the next few months.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.