Ally Financial Overview
Zacks Rank #5 (Strong Sell) stock Ally Financial (ALLY) is a player in the online financial services sector that provides customers a range of banking and loan offerings. The company mainly focuses on auto loans, but its business extends to banking facilities, mortgages, investment options, and insurance coverage. ALLY is best known for providing top-notch service and cutting-edge technology solutions.
Deteriorating Credit Quality is a Headwind
The macroeconomic climate is a causing an issue for ALLY Financial, and the company anticipates that delinquencies will increase significantly (+7.4%) in the short term. Debt levels are reaching record highs in the United States, with the average consumer debt soaring to ~$37k.
Operating Expenses are Increasing
Mounting operating expenses will likely hurt Ally’s bottom-line growth. Over the past five years, the company’s expenses have recorded a compound annual growth rate (CAGR) of nearly 10%, driven by higher compensation and benefit costs.
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With several analysts tracked by Zacks revising earnings estimates lower for 2025, investors want to see costs dropping or at least staying relatively stagnant.
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With the company launching products and expanding into newer areas of operation, expenses are expected to remain elevated. Our estimate for total non-interest expenses reflects a CAGR of 2.4% by 2026.
Negative Earnings ESP Score
Zacks Earnings ESP (Expected Surprise Prediction) tracks the history of recent earnings revisions. A negative ESP score reveals the company has experienced negative recent analyst revisions. When a company has a negative ESP score and a Zacks Rank #3 or worse (like ALLY), it tends to miss earnings expectations and underperform its peers.
Relative Weakness
ALLY shares are exhibiting relative weakness compared to the S&P 500 Index. Year-to-date, the S&P has gained 24%, while ALLY shares have gained a futile 1.7%. Meanwhile, shares are carving out a classic bear flag chart pattern.
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Bottom Line
Increasing expenses and macro headwinds are reasons to avoid Ally Financial.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
