On Monday, Janney made an adjustment to their financial outlook for Ally Financial (NYSE:ALLY), reducing the price target to $39 from the previous $40, while still advocating a Buy rating for the company's stock.
This revision follows Ally Financial's third-quarter earnings report, which highlighted an adjusted earnings per share (EPS) of $0.95, surpassing both Janney's forecast of $0.38 and the consensus estimate of $0.52. The company's unexpected earnings boost was primarily attributed to a tax credit received from electric vehicle (EV) leases.
The management of Ally Financial has signaled a potential change in accounting practices, considering the incorporation of the EV tax credit into their margin calculations.
They also revised their net interest margin (NIM) guidance downward to approximately 3.20% from the initial estimate of around 3.30%. This adjustment is largely a consequence of the dilutive effect of the EV lease program, which has impacted the NIM by about 6 basis points.
In addition to the changes in NIM guidance, Ally Financial's management has also updated their consolidated net charge-off (NCO) rate projections to a range of 1.50%-1.55%, a slight increase from the previous guidance of 1.45%-1.50%. This adjustment reflects the company's expectations regarding the proportion of loans they believe cannot be collected.
Furthermore, Ally Financial's tax rate guidance has been lowered significantly to between negative 25% and negative 30%, a shift from the earlier guidance of 0% to negative 5%. This update is again a direct result of the impact of the EV lease program on the company's financials. Despite these changes, other guidance items provided by the company have remained consistent.
In light of these developments, Janney has revised their adjusted EPS estimates for Ally Financial for the years 2024 and 2025. The firm has also trimmed their fair value estimate for the company's stock to $39, down from $40, while maintaining their Buy rating.
The adjustments reflect the latest guidance from Ally Financial's management and the ongoing effects of the EV lease program on the company's financial metrics.
In other recent news, Ally Financial revealed an adjusted earnings per share (EPS) of $0.95 for the third quarter of 2024, significantly influenced by tax credits related to electric vehicle lease volumes.
Despite challenges such as interest rate volatility and inflationary pressures, the company originated $9.4 billion in consumer loans in its auto segment.
However, retail deposits saw a decline of $600 million in the quarter. In the realm of analyst ratings, Citi maintained a Buy rating on Ally Financial, Barclays (LON:BARC) held an Equalweight rating, and Raymond James upgraded the company's stock from Underperform to Market Perform.
BTIG, on the other hand, reiterated a Neutral rating. Ally Financial also announced a quarterly dividend of $0.30 for Q4 2024, and its insurance segment reached a record $384 million in premiums.
Furthermore, electric vehicle lease originations accounted for 12% of total origination volume, indicating the company's progress in recent developments.
InvestingPro Insights
Recent InvestingPro data provides additional context to Ally Financial's financial situation. Despite the downward revision in Janney's price target, Ally's stock still appears to have potential upside. InvestingPro's Fair Value estimate stands at $43.8, while the average analyst fair value target is $40, both above the current price of $35.01.
Ally's P/E ratio of 13.94 and Price to Book ratio of 0.86 suggest the stock may be undervalued, aligning with Janney's maintained Buy rating. The company's profitability over the last twelve months and analysts' expectations of continued profitability this year are positive indicators.
However, investors should note that Ally's revenue growth has been negative, with a -8.04% decline in the last twelve months. This aligns with the challenges mentioned in the article, such as the impact of the EV lease program on the company's financials.
Two key InvestingPro Tips highlight both positive and cautionary aspects:
1. Ally has maintained dividend payments for 9 consecutive years, which may appeal to income-focused investors.
2. Eight analysts have revised their earnings downwards for the upcoming period, suggesting some caution may be warranted.
For a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide valuable insights into Ally Financial's prospects.
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