Why is Earnings Beat Likely for Ally Financial (ALLY) in Q4?

Ally Financial Inc. ALLY is slated to announce fourth-quarter and full-year 2017 results on Jan 30, before market open. Its revenues and earnings for the quarter are projected to grow year over year.

Last quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from an increase in revenues, partially offset by higher expenses. However, higher provision for loan losses was a headwind.

Moreover, the company boats a decent earnings surprise history. Its earnings managed to surpass the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 9.1%.

Also, activities of the company during the fourth quarter encouraged analysts to revise estimates upward. As a result, the Zacks Consensus Estimate for earnings for the to-be-reported quarter of 59 cents has increased 1.7% over the last 30 days. The figure also reflects growth of 9.3% on a year-over-year basis.

Further, the Zacks Consensus Estimate for sales for the quarter is $1.44 billion, which reflects 5.1% year-over-year growth.

Notably, the company’s price performance has been quite encouraging. Its shares have gained 53.3% in 2017, outperforming the industry’s rally of 6.9%.

Will the rally in stock price continue post Q4 earnings release?

Let’s take a look at how things have shaped up for this announcement.

A Likely Positive Surprise?

According to our quantitative model, chances of Ally Financial beating the Zacks Consensus Estimate in the fourth quarter are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: Ally Financial has an Earnings ESP of +1.27%.

Zacks Rank: Ally Financial sports a Zacks Rank #1 (Strong Buy), which increases the predictive power of ESP.

Factors to Influence Q4 Results

Management expects used vehicle prices to fall by nearly 5% in 2017. Thus, lease revenues are projected to decline during the quarter owing to a smaller lease portfolio as well as lower used vehicle value. Since the company primarily deals in auto loans, this might have a marginal adverse effect on its earnings in the quarter.

Nonetheless, total other revenues are projected to increase sequentially. While the Zacks Consensus Estimate of $248 million for insurance premiums and service revenues earned reflects decline of 1.6% sequentially, the Zacks Consensus Estimate for net other gain on investments for the quarter is $40 million, which depicts growth of nearly 74%.

Overall, the Zacks Consensus Estimate for total other revenues is $395 million, reflecting growth of 3.7% on a sequential basis.

Further, given the higher interest rates and Ally Financial’s efforts to diversify into mortgage business, NII is expected to increase in the quarter.

Ally Financial has been making efforts to grow inorganically, introduce new products and diversify operations. Given these initiatives, the company is likely to witness an increase in operating expenses. Management expects expenses to be $760 million in the quarter.

Other Stocks to Consider

Here are a few other stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

T. Rowe Price Group, Inc. TROW has an Earnings ESP of +0.90% and a Zacks Rank #2 (Buy). It is scheduled to come up with results on Jan 30.

CIT Group Inc. CIT is also expected to come up with quarterly results on Jan 30. It has an Earnings ESP of +3.66% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lazard Ltd. LAZ is slated to report results on Feb 1. It has an earnings ESP of +2.17% and a Zacks Rank #3.

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