Ally Financial Inc. ALLY remains well poised for top-line improvement, supported by retail loan growth, strong originations and rise in deposit balances. Moreover, the company’s efficient capital-deployment activities are expected to enhance shareholder value.
However, mounting expenses and high debt levels remain major concerns for the company. In fact, its Zacks Consensus Estimate for 2019 earnings has been revised marginally downward, reflecting that analysts are not very optimistic regarding its earnings growth potential.
Thus, the stock currently carries a Zacks Rank #3 (Hold). Its price performance also does not seem very impressive. Shares of Ally Financial have lost 2.8% over the past year compared with 9.8% decline recorded by the industry.
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Notably, Ally Financial has been making efforts to diversify its revenue sources by enhancing digital offerings and introducing new products. These efforts are expected to aid the bottom line.
Moreover, the company has been witnessing a persistent improvement in net interest margin (NIM). NIM has grown from 1.40% in 2012 to 2.65% in 2018. Margins are expected to continue improving, driven by its efforts toward becoming a bank, gradual improvement in rate scenario and rising loan demand.
Further, supported by strong balance sheet position, the company is expected to continue efficient capital deployment activities, which are likely to enhance shareholder value. In fact, the Fed announced that Ally Financial is not required to take part in annual stress tests and conduct company-run stress tests. This provides the company with the flexibility to announce capital deployment plans.
However, elevated expenses remain a major concern. Over the last four years (ended 2018), expenses witnessed a CAGR of 5.7%. With the launch of new products and efforts to expand into newer areas of operations, expenses are expected to rise in the coming quarters, thereby hurting bottom-line growth.
Further, the company uses high levels of debt to finance its operations. Though it is undertaking measures to restructure its balance sheet, higher debt levels could limit its flexibility and restrict it from procuring additional finance for working capital, capital expenditure, acquisitions or other purposes.
Stocks to Consider
A few better-ranked stocks from the finance space are Credit Acceptance Corporation CACC, Garrison Capital Inc. GARS and SLM Corporation SLM.
Credit Acceptance’s Zacks Consensus Estimate for the current year earnings has been revised 6.4% upward over the past 60 days. The stock has gained nearly 6.9% in the past three months. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Garrison Capital Inc.’s earnings estimates for 2019 have remained unchanged over the past 60 days. The stock has gained 1% in the past three months. Currently, it carries a Zacks Rank #2 (Buy).
SLM Corporation also carries a Zacks Rank #2. Over the past 60 days, it has witnessed an upward earnings estimate revision of 2.5% for the current year. Additionally, the stock has gained around 8% in the past three months.
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