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Earnings Beat: Ally Financial Inc. Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Models

Ally Financial Inc. (NYSE:ALLY) just released its latest second-quarter results and things are looking bullish. It was overall a positive result, with revenues beating expectations by 6.2% to hit US$1.6b. Ally Financial also reported a statutory profit of US$0.64, which was an impressive 200% above what the analysts had forecast. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.

See our latest analysis for Ally Financial

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earnings-and-revenue-growth

Taking into account the latest results, the most recent consensus for Ally Financial from 14 analysts is for revenues of US$6.08b in 2020 which, if met, would be a solid 10.0% increase on its sales over the past 12 months. Statutory earnings per share are forecast to dive 76% to US$0.44 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$6.06b and earnings per share (EPS) of US$0.21 in 2020. There was no real change to the revenue estimates, but the analysts do seem more bullish on earnings, given the considerable lift to earnings per share expectations following these results.

The consensus price target was unchanged at US$27.09, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Ally Financial analyst has a price target of US$34.00 per share, while the most pessimistic values it at US$22.00. This shows there is still a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. For example, we noticed that Ally Financial's rate of growth is expected to accelerate meaningfully, with revenues forecast to grow 10.0%, well above its historical decline of 3.1% a year over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 7.8% next year. So it looks like Ally Financial is expected to grow faster than its competitors, at least for a while.

The Bottom Line

The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Ally Financial following these results. Happily, there were no major changes to revenue forecasts, with the business still expected to grow faster than the wider industry. The consensus price target held steady at US$27.09, with the latest estimates not enough to have an impact on their price targets.

With that in mind, we wouldn't be too quick to come to a conclusion on Ally Financial. Long-term earnings power is much more important than next year's profits. We have forecasts for Ally Financial going out to 2022, and you can see them free on our platform here.

However, before you get too enthused, we've discovered 3 warning signs for Ally Financial that you should be aware of.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.

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