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Wells Fargo bearish on Ally Financial shares, cites possible negative auto credit

EditorEmilio Ghigini
Published 2024-06-12, 06:20 a/m

On Wednesday, Wells Fargo (NYSE:WFC) reiterated its underweight rating on Ally Financial (NYSE:ALLY), maintaining a price target of $33.00. The financial institution is expected to provide an update on the 2024 full-year auto net charge-off (NCO) guidance at the second-quarter earnings.

Comments from the analyst indicated that the second-quarter net interest margin (NIM) remarks are seen as positive, but the auto credit observations are considered slightly negative.

The analyst pointed out that for a detailed analysis of consumer credit, one should refer to Wells Fargo's in-depth review of the low-end consumer sector. In terms of trading, Ally Financial currently has a price-to-earnings ratio of 7.8 times the estimated earnings per share (EPS) for 2025 and trades at 1.2 times the price to tangible book value (P/TBV). When adjusted for accumulated other comprehensive income (AOCI), the tangible book value stands at 0.85 times.

Ally Financial's stock performance and valuation metrics, such as the P/TBV ratio and the forward-looking earnings multiple, provide a snapshot of the company's current market standing. The underweight rating suggests that the analyst believes the stock may underperform the general market or its sector in the near future.

Investors and market watchers closely follow ratings and price targets set by financial institutions like Wells Fargo, as these can influence market perceptions and investment decisions. The forthcoming second-quarter earnings report will be an important event for Ally Financial, as it will offer more insights into the company's financial health and operational performance, particularly in the auto finance segment.

The update on the full-year auto NCO guide and the net interest margin will be key factors for investors to consider, alongside the broader assessment of consumer credit trends that may affect Ally Financial's business and the financial sector at large. The company's adherence to the price target and rating will be monitored as the market evaluates its position and potential for growth.

In other recent news, Ally Financial has been the focus of several analyst updates and strategic developments. BTIG initiated coverage on Ally Financial with a Buy rating and a price target of $51.00, citing the company's strategic measures to navigate the auto industry's challenges.

BMO (TSX:BMO) Capital Markets and TD (TSX:TD) Cowen revised their earnings estimates upward following Ally Financial's stronger-than-anticipated first-quarter revenue of $2 billion. BMO raised its price target to $37, maintaining a Market Perform rating, while TD Cowen increased its price target to $43, maintaining a Hold rating.

In contrast, J.P. Morgan downgraded Ally Financial to "Underweight" from "Neutral," citing a valuation run-up that limits further upside potential. Ally Financial also recently underwent a leadership transition, with Michael Rhodes assuming the role of CEO. This change is anticipated to bring fresh perspectives and strategies to the company.

The company has been proactive in managing deposit rates and liability sensitivity and has formed strategic partnerships with automotive brands like Nissan (OTC:NSANY) and Toyota (NYSE:TM). Despite the expected decline in second-quarter deposits and increased criticized exposure, these recent developments suggest that Ally Financial is well-positioned to navigate through industry challenges and maintain its growth trajectory.

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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