Here's What Makes Ally Financial Stock a Must Buy Right Now

It seems to be a wise decision to add Ally Financial ALLY stock to your portfolio now, given the company’s efforts to diversify revenues. Also, restructuring and expansion activities, as well as its strong balance sheet position bode well for the future.

Further, analysts are bullish on the stock. The Zacks Consensus Estimate for the company’s earnings for both 2020 and 2021 has been revised nearly 1% upward over the past 60 days. The stock currently sports a Zacks Rank #1 (Strong Buy).

Nonetheless, the company’s price performance so far this year has not been that impressive, mainly due to coronavirus-related market mayhem. The stock has lost 52.9% compared with the industry’s 50.5% decline in the said period.

Why Ally Financial is an Attractive Pick

Earnings Growth: Ally Financial’s earnings growth has been 17.5% over the past three to five years compared with the industry’s 12.4% rally. This momentum is likely to continue in the near term, which is indicated by projected earnings per share growth of 14.8% for 2020 and 12.9% for 2021.

Moreover, Ally Financial has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average being 3.6%.

Further, the long-term (three-five years) projected earnings growth rate of 16% promises rewards for shareholders.

Revenue Strength: Backed by strong originations and retail loan growth, Ally Financial’s revenues witnessed a CAGR of 5.1% over the last five years (2015-2019). Strong origination volume, retail loan growth and rise in deposit balances are expected to keep the growth momentum intact.

While near-zero interest rates might have an adverse impact on net interest margin to some extent in the near term, rising consumer loan demand and management’s efforts to become a diversified banking company will offer support. Also, Ally Financial is making efforts to enhance digital offerings and introduce products. In February, it announced a deal to acquire CardWorks Inc., which is expected to be accretive to earnings. Further, its wealth management and online brokerage initiatives related to credit card offerings are impressive.

Its projected sales growth rate of 5.2% for 2020 and 3.2% for 2021 ensures continuation of the upward revenue trend.

Efficient Capital Deployment Plan: Ally Financial’s capital deployment actions are impressive. In January, it announced 11.8% dividend hike. This followed two hikes — 13.3% in January 2019 and 15.4% in July 2018. Also, it had a share repurchase authorization in place, which was suspended by the company due to the coronavirus outbreak. Driven by capital strength, earnings growth and favorable dividend payout ratio, it will be able to sustain enhanced capital deployment activities.

Stock Seems Undervalued: With respect to price/book and PEG ratios, Ally Financial seems undervalued. It has a P/B ratio of 0.36 and PEG ratio of 0.25, which are below the respective industry averages of 0.62 and 0.30.

Also, the stock has a Value Score of A. The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount.

Other Stocks Worth a Look

LendingTree, Inc.’s TREE earnings for the current year are expected to rise 19%. Its shares have lost 35.9% on a year-to-date basis. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BGC Partners, Inc.’s BGCP earnings are expected to increase 6.6% for 2020. So far this year, this Zacks Rank #2 stock has lost 57.7%.

Earnings for the current year for Cohen & Steers Inc. CNS are expected to grow 16%. Its share price has declined 32.6% so far this year. The stock currently carries a Zacks Rank #2.

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