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Ally Financial's (ALLY) Stock Up 1.8% on Q4 Earnings Beat

Zacks Equity Research

Shares of Ally Financial Inc. ALLY increased 1.8% following the release of its fourth-quarter and full-year 2017 results. Adjusted earnings of 70 cents per share for the quarter surpassed the Zacks Consensus Estimate of 59 cents. Also, the bottom line compared favorably with the prior-year quarter figure of 54 cents.

Results benefited from an increase in total net revenues, partially offset by higher expenses. Also, capital ratios improved on a year-over-year basis in the quarter. However, higher provision for loan losses was a headwind.

After taking into consideration non-recurring items, including the 27 cents per share charge related to the Tax Act, net income available to common shareholders (GAAP basis) for the quarter was $181 million or 41 cents per share, decreasing from $248 million or 52 cents registered in the prior-year quarter.

For 2017, adjusted earnings per share came in at $2.39, surpassing the Zacks Consensus Estimate of $2.30 per share. Also, the figure improved 10.6% year over year. Net income available to common shareholders (GAAP basis) was $929 million or $2.04 per share compared with $1.04 billion or $2.15 per share in 2016.

Revenues Improve, Expenses Rise

Total net revenues for the quarter increased nearly 7.7% year over year to $1.47 billion, owing to a rise in net financing revenue. Also, the figure surpassed the Zacks Consensus Estimate of $1.44 billion.

For 2017, net revenues were $5.77 billion, increasing 6% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $5.75 billion.

Total non-interest expenses for the quarter increased 6.7% year over year to $769 million. The rise was due to an increase in compensation and benefits expense, and other operating expenses.

Credit Quality: Mixed Bag

Non-performing loans of $792 million at the end of the quarter were down 3.3% year over year. However, provision for loan losses increased 10.1% year over year to $294 million.

Strong Balance Sheet, Capital Ratios Improve

Total finance receivables and loans amounted to $121.62 billion as of Dec 31, 2017 compared with $117.59 billion as of Sep 30, 2017. Deposits totalled $93.26 billion, increasing from $90.12 billion as of Sep 30, 2017.

As of Dec 31, 2017, total capital ratio came in at 12.9%, increasing from 12.6% registered in the prior-year quarter. Similarly, Tier I capital ratio was 11.2%, up from 10.9% as of Dec 31, 2016.

Share Repurchases

During the year, the company repurchased shares worth $753 million.

Our Take

Ally Financial’s initiatives toward diversifying revenue base are likely to support profitability in the quarters ahead. Also, the company's steady capital deployment plan reflects a strong balance sheet position. Moreover, given the gradual change in the rate environment, its margin is expected to further improve, thereby supporting top-line growth. However, high debt levels and mounting expenses remain major concerns.

Ally Financial Inc. Price, Consensus and EPS Surprise
 

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

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

Performance of Other Finance Companies

Among others, Capital One Financial Corporation COF reported fourth-quarter 2017 adjusted earnings of $1.62 per share, lagging the Zacks Consensus Estimate of $1.83. However, it compared favorably with the year-ago quarter’s earnings of $1.58. Results benefited from an increase in revenues and easing margin pressure. Also, the quarter witnessed a rise in loan and deposit balances. However, increase in provisions and expenses were the undermining factors.

Sallie Mae’s SLM fourth-quarter 2017 adjusted core earnings of 19 cents per share was in line with the Zacks Consensus Estimate. The reported figure increased 22% from the prior-year quarter. Earnings growth was supported by an increase in net interest income. The private education loan portfolio and deposits grew considerably. However, these positives were offset by lower non-interest income, elevated expenses and poor credit quality.

Navient Corporation’s NAVI fourth-quarter 2017 adjusted core earnings per share of 43 cents surpassed the Zacks Consensus Estimate by a penny. The reported figure matches the year-ago quarter tally. Results reflected higher non-interest income. However, on the downside, the company registered lower net interest income and higher expenses.

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