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Retail Loan Growth, Solid Balance Sheet Aid Ally Financial

Zacks Equity Research

Ally Financial Inc.’s ALLY top line is expected to continue to improve, driven by consumer loan growth, strong originations and rise in deposit balances. Moreover, the company’s efficient capital deployment activities are likely to enhance shareholder value, going forward.

In fact, its Zacks Consensus Estimate for 2019 earnings has been revised 1.4% upward over the past 30 days, reflecting that analysts are optimistic regarding its earnings growth potential.

Thus, the stock currently carries a Zacks Rank #2 (Buy). Its price performance also seems impressive. Shares of Ally Financial have gained 14% over the past six months, outperforming 9.3% growth recorded by the industry.

Looking at its fundamentals, the company has been witnessing a persistent improvement in net interest margin (NIM) over the past few years. The recent flattening of the yield curve along with the Fed’s accommodative stance has adversely impacted margins to some extent. Nevertheless, driven by continued loan growth and management’s efforts to become a diversified banking company, NIM is likely to continue to be positively impacted in the near term.

Notably, Ally Financial has been making efforts to diversify its revenue sources by enhancing digital offerings and introducing new products. These efforts are expected to aid the bottom line. Moreover, its deal to acquire Health Credit Services, a point-of-sale payment provider, will likely further enhance its product offerings.

Supported by strong balance sheet position, the company is expected to continue efficient capital deployment activities, which are likely to enhance shareholder value. In fact, the Fed announced that Ally Financial is not required to take part in annual stress tests and conduct company-run stress tests. This provides the company with the flexibility to announce capital deployment plans.

However, as Ally Financial launches new products and expands into newer areas of operations, expenses are expected to continue rising, thereby hurting bottom-line growth. Further, the use of high levels of debt by the company remains a major concern.

Other Stocks to Consider

A few other top-ranked stocks from the finance space are T. Rowe Price Group, Inc. TROW, TriplePoint Venture Growth BDC Corp. TPVG and Gladstone Investment Corporation GAIN.

T. Rowe Price’s earnings estimates for 2019 have moved 3.9% upward over the past 60 days. The stock has gained 16.8% year to date. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past 60 days, TriplePoint has witnessed an upward earnings estimate revision of 1.2% for the current year. Additionally, the stock has gained around 51.2% so far this year. It currently carries a Zacks Rank #2.

Gladstone Investment’s Zacks Consensus Estimate for earnings for the current fiscal year has been revised 6.2% upward over the past 60 days. The stock has gained nearly 24.8% so far this year. It currently carries a Zacks Rank #2.

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