A month has gone by since the last earnings report for Ally Financial Inc.ALLY . Shares have added about 5.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Ally Financial Beats on Q4 Earnings as Revenue Rises
Ally Financial's fourth quarter 2016 adjusted earnings of $0.54 per share surpassed the Zacks Consensus Estimate of $0.47. Also, the figure improved 3.8% from the prior-year quarter.
Higher net revenues, supported by a strong balance sheet, primarily helped the company to report better-than-expected results. However, escalated expenses and higher provisions for loan losses were the headwinds.
Net income available to common shareholders (GAAP basis) for the quarter came in at $248 million, against a loss of $953 million recorded in the prior-year quarter.
The company reported full-year 2016 adjusted earnings of $2.16, surpassing the Zacks Consensus Estimate of $2.10. The figure improved 8% year over year. GAAP net income for 2016 came in at $1.04 billion, against a loss of $1.28 billion a year ago.
Higher Revenues Partially Offset Expense Pressure
Total net revenue for the quarter climbed nearly 2.2% year over year to $1.37 billion owing to a rise in total other revenue. The reported figure was in line with the Zacks Consensus Estimate.
For 2016, total net revenue came in at $5.44 billion, up 11.8% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $5.38 billion.
Controllable expenses came in at $499 million, up nearly 7.3% from the prior-year quarter. Further, other non-interest expenses increased 9.9% year over year to $222 million.
Credit Quality Deteriorates
Non-performing loans of $819 million were up 20.4% year over year. Moreover, provision for loan losses increased 11.3% year over year to $267 million.
Balance Sheet Strengthens, Mixed Capital Ratios
Total finance receivables and loans amounted to $117.80 billion as of Dec 31, 2016, compared with $113.83 billion as of Sep 30, 2016. Further, deposits totaled $79.02 billion, up from $75.74 billion as of Sep 30, 2016.
As of Dec 31, 2016, total capital ratio came in at 12.6%, up from 12.5% at the end of the prior-year quarter. Tier I capital ratio was 10.9%, compared with 11.1% as of Dec 31, 2015.
In 2016, the company returned more than $400 million to shareholders in the form of share repurchases and dividend payments.
On the profitability front, management has set its long-term target of core Return on Tangible Common Equity to be closer to 12%, while it expects to deliver adjusted earnings per share CAGR of around 15%.
In 2017, net financing revenue is projected to rise driven by net interest income growth, partly offset by lease income decline. Also, by the end of 2019, the same is expected to reach a run rate of around $5 billion, on an annual basis.
Lease revenue is expected to decline owing to management's expectation of a decrease in the used vehicle prices in 2017.
Other revenue is expected to be relatively flat year over year in 2017 as business expansion revenues offset lower investment gains. By 2019, it is anticipated to increase driven by business expansion initiatives.
Management expects provisions to rise in 2017 but at a decreasing rate.
Management expects non-interest expenses to be up approximately $150 million in 2017 attributable to business expansion, loan growth, technology and regulatory requirements. Further, as the company goes into the second half of 2017, revenue growth is expected to outpace expense rise, thereby providing a positive operating leverage and an adjusted efficiency ratio in the low 40s, over the next few years.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been five downward revisions for the current quarter.
Ally Financial Inc. Price and Consensus
At this time, Ally Financial's stock has a subpar Growth Score of 'D', a grade with the same score on the momentum front. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
The stock is suitable solely for value investors based on our styles scores.
Estimates have been broadly trending downward for the stock. The magnitude also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from stock in the next few months.