Ally Financial Inc (NYSE:ALLY) stock rose 4.54% (As on September 17, 11:18:50 AM UTC-4, Source: Google Finance) after BTIG has announced a downgrade of the company from Buy to Neutral. The firm has removed its $44 price target on the stock, noting that it does not provide price targets for stocks it rates as Neutral. The decision comes with an acknowledgment of the absence of short-term catalysts that may drive the stock’s performance. The firm’s previous price target was based on an 8.0x price-to-earnings (P/E) ratio on the company’s projected earnings per share (EPS) for 2025. CFO last week had flagged worsening credit conditions among the auto lender’s borrowers, “we don’t anticipate positive catalysts for the rest of 2024 versus waiting until we get more clarity on 2025’s trajectory,” Caintic wrote in a note to clients. “Macro auto lending data and Ally’s own Trust data make us incrementally worried about further deterioration in Ally’s credit,” he explained. That, in turn, would force Ally to tighten underwriting standards, “which would slow down new originations and therefore lessen the pace of credit improvement.”
Moreover, BTIG expressed a lack of confidence in the potential for Ally Financial’s shares to rise in value before the company provides its 2025 guidance, which is expected to be released in the fourth quarter of 2024. The analyst from BTIG advised a cautious approach to Ally Financial’s stock, suggesting that it may be prudent for investors to hold off on purchasing shares at this time. This advice follows recent declines in the stock’s value, indicating a period of underperformance.
Meanwhile, ALLY credit challenges have intensified over the current quarter as borrowers struggled with high inflation. Consumers have been cutting back on loans amid high interest rates, with the looming economic uncertainty also upping the chances of more loan defaults. Ally also expects its net interest margin – a key measure of lending profitability – to contract in the third quarter sequentially as opposed to expanding.
Additionally, Net income attributable to common shareholders was $266 million in the quarter, compared to $301 million in the second quarter of 2023. The decrease was driven by lower net financing revenue, higher provision for credit losses, and higher noninterest expenses. Other revenue decreased $1 million year over year to $505 million including a $28 million decrease in fair value of equity securities in the quarter compared to a $25 million increase in the second quarter of 2023.