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Ally Financial (ALLY) Q2 Earnings: What's in the Cards?

Zacks Equity Research
Updated

Ally Financial Inc. ALLY is slated to announce second-quarter 2018 results on Jul 26, before the market opens. Its revenues and earnings for the to-be-reported quarter are projected to grow year over year.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from an increase in revenues and lower provisions. However, an increase in expenses was the headwind.

Moreover, the company boasts an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in all of the trailing four quarters, the average beat being 11.3%.

Ally Financial Inc. Price and EPS Surprise
 

Ally Financial Inc. Price and EPS Surprise | Ally Financial Inc. Quote

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Before we take a look at what our quantitative model predicts for the second quarter, let’s check the factors that are expected to impact Q2 results.

Factors to Influence Q2 Results

Management expects used vehicle prices to fall. Thus, lease revenues are projected to decline during the to-be-reported 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 under review.

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

Ally Financial has been making efforts to grow inorganically, introduce products and diversify operations. Given these initiatives, the company is likely to witness an increase in operating expenses.

Also, due to the rise in loan portfolio, provision for loan losses is expected to increase in the to-be-reported quarter.

Here is what our quantitative model predicts:

The chances of Ally Financial beating the Zacks Consensus Estimate in the second quarter are low. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to be confident of an earnings surprise call.

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

Earnings ESP: Ally Financial has an Earnings ESP of -0.82%.

Zacks Rank: Ally Financial currently carries a Zacks Rank #2 (Buy). While this increases the predictive power of ESP, we also need a positive Earnings ESP to be sure of an earnings beat.

While the Zacks Consensus Estimate for earnings for the to-be-reported quarter of 71 cents has remained stable over the past seven days, it reflects a year-over-year improvement of 22.4%.

Further, the Zacks Consensus Estimate for sales for the second quarter is $1.47 billion, which reflects nearly 1% year-over-year growth.

Stocks to Consider

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

SVB Financial Group SIVB is slated to report second-quarter 2018 results on Jul 26. It has an Earnings ESP of +1.26% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hilltop Holdings Inc. HTH is also slated to release results on Jul 26. It has an Earnings ESP of +0.40% and carries a Zacks Rank #3.

Cullen/Frost Bankers, Inc. CFR has an Earnings ESP of +0.89% and carries a Zacks Rank of 2. The company is slated to release results on Jul 26.

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Cullen/Frost Bankers, Inc. (CFR) : Free Stock Analysis Report
 
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Ally Financial Inc. (ALLY) : Free Stock Analysis Report
 
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