Bear of the Day: Ally Financial (ALLY) – January 12, 2023

Analysts remain low-key Ally Financial Inc. (partner Free report) , as they continue to cut their estimates ahead of fourth quarter earnings. This Zacks Rank #5 (Strong Sell) is expected to decline 37% this year.

Ally Financial is a digital financial services company with commercial and corporate clients. It operates a digital bank, Ally Bank, which offers loans, personal loans, deposits and other banking products, as well as financing and car insurance.

Ally also operates a consumer credit card business, securities brokerage and investment advisory services and financial services for financial sponsors and middlemen.

A big problem in the third quarter

On October 19, 2022, Ally Financial reported third quarter results and missed the Zacks Consensus Estimate. It missed $0.61, earning $1.12 versus the $1.73 contract. This is the second time in a row that he has not received any money.

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Net income was $272 million compared to $683 million a year ago as higher financing income was offset by higher provisioning for loan losses, expenses no interest and lower other income.

The company has been hit by rising mortgage rates that have dampened the housing market.

“Financial results decreased in part this quarter due to a decrease in non-marketable investments related to the mortgage business, which had a $0.33 impact on EPS, and the higher due to the increase in car financing loans and the establishment of greater coverage to ensure the The company remains protected because the situation of the recession seems likely to occur in the next month,” said Jeffrey J. Brown, CEO.

Ally’s financing increased by $ 362 million annually to $ 438 million, due to the financial loss that is normalized in line with expectations and the construction of CECL stock due to the volume of strong car production.

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Most of the construction came in vehicles that jumped from $275 million a year to $328 million in funding for losses. The break-even rate on retail cars was 1.05%, up 78 percent year-over-year.

Analysts are getting worse

In the three months since the third quarter report, analysts have been even more pessimistic. Ally plans to report fourth-quarter earnings on Jan. 20, 2023, and analysts have already lowered estimates in that report.

An estimate has been lowered for 2022 and 2023 in the last 7 days. The 2022 Zacks Consensus Estimate fell to $6.00 from $7.20 three months ago. That’s down 30.3% from Ally’s $8.61 a year ago.

The 2023 cut was even more impressive. The 2023 Zacks Consensus Estimate fell to $3.80 from $4.17 in the last 2 months. This is another decrease of 36.7%.

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Parts remain cheap

Ally Financial’s next ex-dividend date is expected in June 2020. They were down 46.8% at that time, but recently made a small rally and gained 8.9% for the month. past

Zacks Investment Research
Image source: Zacks Investment Research

Even with lower earnings, the forward P/E is still cheap at 7x. But investors need to ask themselves, will the earnings decline after next week’s fourth quarter earnings?

Co-workers are also co-workers. In the third quarter, share buybacks netted $415 million. paid 4.9% annual expenses.

But there is much uncertainty surrounding the economic environment as the Federal Reserve continues to raise interest rates. Investors may want to wait on the sidelines to see what develops with earnings estimates before jumping in.


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