BofA Securities has revised its price target on shares of Ally Financial (NYSE: NYSE:ALLY), reducing it to $37.00 from the previous $46.00, while still recommending the stock as a Buy.
The adjustment follows a significant drop in the company's share value on Tuesday, which was attributed to Ally Financial's performance falling short of the market's high expectations, particularly regarding credit trends and sensitivity to liabilities.
The firm noted that Ally Financial's retail auto credit deteriorated more than expected in the third quarter to date and may continue to worsen depending on the unemployment rate. Additionally, while the net interest margin (NIM) commentary was perceived negatively, analysts believe the situation is more complex than it appears at first glance.
Despite the immediate challenges and a divergence in messaging and tone from most regional banks, BofA Securities views the recent sell-off in Ally Financial's shares as excessive.
The firm's analysis, based on comments from the company's CFO, suggests a potential 10% to 15% risk to the estimated earnings per share (EPS) for 2025. They interpret the current weakness in the stock as an opportunity for investors, although they acknowledge that skepticism may persist until credit issues are resolved.
Looking ahead, BofA Securities anticipates that Ally Financial could still achieve management's medium-term targets, including a return on tangible common equity (ROTCE) in the mid-teens and an EPS of over $6 by 2026.
In other recent news, Ally Financial has reported a 15% increase in revenue and an adjusted EPS of $0.97 in its Q2 2024 earnings report. However, the company has been dealing with increased credit challenges, marked by a rise in delinquencies and net charge-offs in its automotive retail sector.
In response, Ally sold its lending business to Synchrony Financial (NYSE:SYF), a transaction that included loan receivables valued at $2.2 billion. Despite these measures, Ally anticipates a contraction in its net interest margin (NIM) for the third quarter due to anticipated federal interest rate cuts.
Various analyst firms have provided ratings on the company's stock; Goldman Sachs (NYSE:GS) and Citi maintained their Buy ratings, Evercore ISI kept its In Line rating, Barclays (LON:BARC) maintained its Equalweight rating, and RBC Capital reinstated coverage with an Outperform rating.
InvestingPro Insights
Recent data from InvestingPro reveals that Ally Financial (NYSE: ALLY) has been navigating through a turbulent market, which is reflected in the significant revisions by analysts. Notably, 10 analysts have revised their earnings upwards for the upcoming period, indicating a potential rebound or adjustment in expectations. This optimism is further supported by the fact that Ally has maintained dividend payments for 9 consecutive years, underscoring a commitment to shareholder returns even in challenging times.
From a valuation perspective, Ally's P/E Ratio stands at 14.12, with an adjusted P/E Ratio for the last twelve months as of Q2 2024 at a lower 12.14, possibly suggesting an attractive valuation relative to earnings. Despite recent revenue contraction, with a -9.63% change in the last twelve months as of Q2 2024, the company's profitability over the same period remains intact. The InvestingPro platform currently lists additional tips that could provide further insights into Ally's financial health and investment potential.
For investors considering Ally Financial's stock, it's worth noting that the RSI suggests the stock is in oversold territory, which could imply a buying opportunity for contrarian investors. However, it is also important to acknowledge the company's weak gross profit margins and the significant hits to the stock price over the last week and month. The full suite of InvestingPro Tips, available at https://www.investing.com/pro/ALLY, offers a more comprehensive analysis for those seeking to make an informed investment decision.
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