Ally Financial (ALLY) Stock Gains 2.3% on Q3 Earnings Beat

Shares of Ally Financial Inc. ALLY gained 2.3% following the release of the company’s third-quarter 2018 results. Adjusted earnings of 91 cents per share surpassed the Zacks Consensus Estimate of 80 cents. Further, the bottom line compared favorably with the prior-year quarter’s figure of 65 cents.

Results benefited from an increase in total net revenues and lower provisions. Moreover, improvement in loans and deposit balances was a positive factor. However, higher expenses witnessed during the third quarter hurt results to some extent. Moreover, capital ratios decreased on a year-over-year basis.

After taking into consideration non-recurring items, net income available to common shareholders (GAAP basis) for the reported quarter was $374 million or 88 cents per share, increasing from $282 million or 63 cents registered in the prior-year quarter.

Revenues Improve, Expenses Rise

Total net revenues were $1.51 billion, up 2.9% year over year. The rise is attributable to an increase in both net financing revenues and other revenues. Moreover, the figure surpassed the Zacks Consensus Estimate of $1.48 billion.

Total non-interest expenses increased 7.2% year over year to $807 million. The rise was due to an increase in all the three expense components.

Credit Quality: Mixed Bag

Non-performing loans of $903 million at the end of the reported quarter were up 11.9% year over year. However, provision for loan losses decreased 25.8% year over year to $233 million.

Strong Balance Sheet, Capital Ratios Decline

Total net finance receivables and loans amounted to $125.36 billion as of Sep 30, 2018, compared with $124.29 billion as of Jun 30, 2018. Deposits totaled $101.38 billion, increasing from $98.73 billion as of Jun 30, 2018.

As of Sep 30, 2018, total capital ratio was 12.7%, decreasing from 13.2% registered in the prior-year quarter. Similarly, Tier I capital ratio was 11.1%, down from 11.5% as of Sep 30, 2017.

Share Repurchases

During the reported quarter, the company repurchased shares worth $250 million.

Our Take

Ally Financial’s initiatives toward diversifying revenue base are likely to support profitability in the quarters ahead. Moreover, improving net interest margin (NIM), driven by higher rates and loan growth is likely to aid top-line growth. However, persistently increasing expenses and use of high debt levels remain major near-term concerns.

Ally Financial Inc. Price, Consensus and EPS Surprise
 

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

Currently, Ally Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Finance Companies

Among others, Capital One Financial Corporation’s COF third-quarter 2018 adjusted earnings of $3.12 per share easily surpassed the Zacks Consensus Estimate of $2.89. Results benefited from rise in net interest income and strength in the card business. Further, a decline in provision for credit losses and improving loans and deposits were the tailwinds. However, lower non-interest income and an increase in operating expenses hurt results to some extent.

Sallie Mae SLM reported third-quarter 2018 core earnings of 23 cents per share, in line with the Zacks Consensus Estimate. Increase in net interest income, aided by rising rates, was a tailwind. However, these positives were offset by elevated expenses, poor credit quality and non-interest loss.

Navient Corporation’s NAVI third-quarter 2018 adjusted core earnings per share of 53 cents surpassed the Zacks Consensus Estimate of 50 cents. Results benefited from a decline in provisions. However, lower revenues, along with escalated expenses, were the key headwinds. Moreover, year-over-year decline in loans was another offsetting factor.

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