Ally Financial Inc. (ALLY) is slated to announce fourth-quarter and full-year 2014 results on Jan 29, before the opening bell.
In the preceding quarter, Ally Financial’s adjusted earnings came 26.19% above the Zacks Consensus Estimate. Results benefited from continued strong performance of the auto finance franchise, which lead to top-line growth. However, this was partially offset by a rise in non-interest expenses.
Will Ally Financial be able to beat the earnings estimates again? Or will it disappoint? Let us see how things have shaped up for this announcement.
Factors Impacting Q4 Results
Ally Financial primarily offers auto loans. Hence, the company’s performance largely depends on the overall health of the Auto Industry.
As per NADA Industry Analysis, the U.S. light-vehicle sales rose more than 7% year over year to 4.1 million units in the quarter. Further, light-vehicle sales for 2014 rose 5.8% from the 2013-level to16.4 million units, marking the highest sales since 2006 when 16.5 million units were sold.
Also, sales on a seasonally adjusted annualized rate (“SAAR”) basis reached 16.80 million in Dec 2014. For 2014, sales on SAAR basis were 16.43 million, up from 15.53 million for 2013. Hence, we believe that driven by a persistent rise in auto sales, Ally Financial should witness an improvement in Automotive Finance and Insurance divisions’ revenues.
Ally Financial has been able to keep a check on its expenses too. Though non-interest expenses are anticipated to mount, the rise will not likely dampen bottom-line growth in the quarter. Also, as Ally Financial will likely experience a rise in auto-loan origination, provision for loan losses is expected to remain on the higher side.
Moreover, in Dec 2014, Ally Financial fully exited Troubled Asset Relief Program (“TARP”) with the U.S. Department of the Treasury selling the remaining 54.9 million shares of Ally common stock at $23.25 per share. Though this is a positive development for the company, we don’t expect this to impact the fourth-quarter financials.
Notably, Ally Financial’s quarterly activities were not sufficient to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter fell 2.5% to 39 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that Ally Financial is likely to beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Ally Financial is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 39 cents.
Zacks Rank: Ally Financial’s Zacks Rank #3 increases the predictive power of ESP. But we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks to Consider
Here are a few finance stocks you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The Earnings ESP for Ameriprise Financial, Inc. (AMP) is +0.45% and it has a Zacks Rank #3. The company is slated to report on Jan 28.
T. Rowe Price Group, Inc. (TROW) has an Earnings ESP of +0.89% and a Zacks Rank #3. It is scheduled to report results on Jan 28.
Lazard Ltd. (LAZ) has an Earnings ESP of +1.91% and holds a Zacks Rank #3. It is expected to report on Feb 5.
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