What's in Store for Ally Financial (ALLY) in Q3 Earnings?

Ally Financial Inc. ALLY is slated to announce third-quarter 2017 results on Oct 25 before the market opens. Its revenues and earnings are projected to grow year over year.

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

However, the company does not have an impressive earnings surprise history. Its earnings managed to surpass the Zacks Consensus Estimate in only two of the trailing four quarters, the average beat being 4.3%.

Moreover, activities of the company during the third quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings decreased 3.4% over the last 30 days. Nevertheless, the figure represents growth of nearly 2% on a year-over-year basis.

Also, the Zacks Consensus Estimate for sales is $1.46 billion for the to-be-reported quarter, which is expected to witness a rise of 5.3% year over year.

Notably, the company’s price performance has been quite encouraging. Its shares have gained 27.7% in a year’s time, outperforming the industry’s rally of 20.5%.

Ally Financial Inc. Price and EPS Surprise
 

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

Will the rally in stock price continue post Q3 earnings release?

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

Earnings Whispers

According to our quantitative model, chances of Ally Financial beating the Zacks Consensus Estimate in the third quarter are low. This is because it does not have the right combination of the two key ingredients — 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 -2.00%.

Zacks Rank: Ally Financial currently carries a Zacks Rank #4 (Sell).

Factors to Influence Q3 Results

Lower Used Vehicle Prices to Hurt Results: With management’s expectations of a decline in used vehicle prices, Ally Financial’s earnings are likely to be adversely impacted to quite an extent as it primarily deals in auto loans.

Further, lease revenues are projected to decline during the quarter owing to a smaller lease portfolio as well as lower used vehicle value.

Higher Rates to Support Net Interest Income (NII): Given the higher interest rates and Ally Financial’s efforts to diversify into mortgage business, NII is expected to increase in the third quarter.

Operating Expenses to Rise: 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.

Stocks to Consider

Here are a few 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.

TD Ameritrade Holding Corporation AMTD is slated to report results on Oct 24. It has an earnings ESP of +0.82% and a Zacks Rank #2 (Buy).

Legg Mason, Inc. LM has an Earnings ESP of +0.97% and carries a Zacks Rank of 3. It is scheduled to report results on Oct 25.

Lazard Ltd. LAZ is slated to report results on Oct 26. It has an earnings ESP of +1.39% and carries a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

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Ally Financial Inc. (ALLY) : Free Stock Analysis Report
 
TD Ameritrade Holding Corporation (AMTD) : Free Stock Analysis Report
 
Legg Mason, Inc. (LM) : Free Stock Analysis Report
 
Lazard Ltd. (LAZ) : Free Stock Analysis Report
 
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