Ally Financial (ALLY) Poised For Growth Despite High Costs

Ally Financial Inc.’s (NYSE:ALLY) initiatives to diversify its revenue base are expected to support profitability in the quarters ahead. Moreover, it has been witnessing positive estimate revisions off late, reflecting analysts’ optimism regarding its earnings growth potential.

The company’s Zacks Consensus Estimate for the current year has been revised upward over the past 30 days.

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, the company has been witnessing a persistent improvement in net interest margin (NIM). Margins are expected to continue improving, driven by its efforts toward becoming a bank, the gradual improvement in rate scenario and rising loan demand.

Further, supported by a strong balance sheet position, the company is expected to continue its efficient capital deployment activities, which are likely to enhance shareholder value.

However, elevated expenses remain a major concern. With the launch of new products and efforts to boost profitability, expenses are expected to rise in the coming quarters, thereby hurting bottom-line growth to some extent.

Further, the company uses high levels of debt to finance its operations. Higher debt levels could limit its flexibility and restrict it from procuring additional finance for working capital, capital expenditures, acquisitions or other purposes.

Stocks to Consider

Few stocks from the finance space worth considering are Citigroup Inc. (NYSE:C) , JPMorgan Chase & Co. (NYSE:JPM) and U.S. Bancorp (NYSE:USB) . For all these stocks, the Zacks Consensus Estimate for current-year earnings has been revised upward over the past 30 days.

Citigroup’s shares have gained more than 30% over the past two years.

Shares of JPMorgan have gained more than 50% over the past two years.

U.S. Bancorp’s share price has increased nearly 15% in the past two years.

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