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BMO raises Ally Financial share target on earnings beat

EditorEmilio Ghigini
Published 2024-04-19, 08:58 a/m

On Friday, BMO (TSX:BMO) Capital Markets adjusted its outlook on Ally Financial Inc (NYSE: NYSE:ALLY) shares, increasing the price target to $37 from the previous $36. This change follows the company's first-quarter earnings that surpassed expectations. The firm has decided to maintain a Market Perform rating for the stock.

Ally Financial reported a stronger-than-anticipated top-line for the first quarter of 2024, prompting the analyst at BMO Capital to revise their earnings estimates upward by as much as 6%. The revision comes as higher revenue projections outweigh the anticipated increase in costs.

In response to the positive earnings report, Ally Financial has raised its full-year guidance. The company now expects a lower tax rate and an acceleration in fee growth, which are set to counterbalance the anticipated rise in operating and credit costs.

During the quarter, Ally Financial demonstrated a strategic financial move by securitizing $1.1 billion of retail auto loans. The company recognizes deconsolidation as a significant strategy to leverage favorable market conditions while concurrently managing the growth of risk-weighted assets (RWA).

The new price target set by BMO Capital is based on a valuation metric of 0.8 times the two-year-forward tangible common equity (TCE), which itself is derived from an expected 13% return on tangible common equity (RoTCE) and a six times target price-to-earnings (P/E) ratio. The updated target reflects BMO Capital's analysis of Ally Financial's financial prospects and market position following the first-quarter results.

InvestingPro Insights

As Ally Financial Inc (NYSE: ALLY) garners attention with its first-quarter performance and revised full-year guidance, it's worth considering some key metrics and insights from InvestingPro. With a market capitalization of $11.77 billion, Ally's valuation seems reasonable with a Price to Book ratio of 1.04 as of the last twelve months leading up to Q1 2024. This could be indicative of the stock trading at a fair value relative to its book worth. The company's revenue, however, has seen a decline of 9.54% over the same period, which may raise some concerns about top-line growth.

Despite the revenue dip, Ally has maintained a strong dividend yield of 3.1%, rewarding investors for their loyalty through 9 consecutive years of dividend payments. This consistency is a positive signal for those looking for steady income streams from their investments. Moreover, the substantial price increase of over 60% in the past six months suggests a robust market confidence in the stock, aligning with the positive sentiment expressed by BMO Capital Markets.

InvestingPro Tips highlight that analysts have downgraded their earnings expectations for Ally, which could be a point of caution for potential investors. However, the company has remained profitable over the last twelve months, and analysts predict profitability will continue this year. For those interested in a deeper dive into Ally's financial health and future prospects, InvestingPro offers additional tips and metrics that could guide investment decisions. Use coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription. Discover the full range of insights, including numerous additional InvestingPro Tips, to refine your investment strategy.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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