Ally Financial (ALLY) Q4 Earnings: What's In The Cards?

Ally Financial Inc. (NYSE:ALLY) is slated to announce fourth-quarter and 2018 results on Jan 30, before the market opens. Its revenues and earnings for the to-be-reported quarter are projected to grow year over year.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from an increase in revenues and lower provisions. However, an increase in expenses was the headwind.

Moreover, the company boasts an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in all of the trailing four quarters, the average beat being 13.1%.

Before we take a look at what our quantitative model predicts for the fourth quarter, let’s check the factors that are expected to impact fourth-quarter results.

Factors to Influence Q4 Results

Management expects used vehicle prices to fall. Thus, lease revenues are projected to decline during the to-be-reported quarter, owing to a smaller lease portfolio as well as lower used vehicle values. Since the company primarily deals in auto loans, this might have a marginal adverse effect on its earnings in the quarter under review.

Nonetheless, given the higher interest rates and Ally Financial’s efforts to diversify into the mortgage business, net interest income (NII) is expected to increase in the fourth quarter.

Notably, the Zacks Consensus Estimate for insurance premiums and service revenue earned is $271 million for the fourth quarter, reflecting year-over-year rise of 7.1%. Moreover, the Zacks Consensus Estimate for net other gain on investments is $30 million, reflecting growth of 3.4% year over year.

However, the consensus estimate for net gain on mortgage and automotive loans is $1 million, down almost 67% year over year. Further, the Zacks Consensus Estimate for servicing fees shows that this component is likely to decline. Its estimate is $8.5 million, reflecting a decrease of 15% year over year.

The Zacks Consensus Estimate for total non-interest income shows that this component is likely to increase. Estimate of $403 million for the fourth quarter represents growth of 6.3% year over year.

Ally Financial has been making efforts to grow inorganically, introduce products and diversify operations. Given these initiatives, the company is likely to witness an increase in operating expenses during the quarter under review. Management expects non-interest expenses to increase 4-6% in 2018.

Here is what our quantitative model predicts:

Chances of Ally Financial beating the Zacks Consensus Estimate in the fourth quarter are low. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to be confident of an earnings surprise call.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Ally Financial has an Earnings ESP of -1.22%.

Zacks Rank: The company currently carries a Zacks Rank #2 (Buy). While this increases the predictive power of ESP, we also need a positive Earnings ESP to be sure of an earnings beat.

The Zacks Consensus Estimate for earnings of 82 cents for the to-be-reported quarter has increased 1.2% over the past 30 days. Moreover, it reflects a year-over-year improvement of 17.1%.

Further, the Zacks Consensus Estimate for sales for the fourth quarter is pegged at $1.52 billion, which reflects nearly 3.4% year-over-year growth.

Stocks to Consider

Here are a few finance stocks that you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

BOK Financial Corporation (NASDAQ:BOKF) is slated to report results on Jan 30. It has an Earnings ESP of +1.08% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Credit Acceptance Corporation (NASDAQ:CACC) is also slated to release results on Jan 30. It has an Earnings ESP of +0.21% and carries a Zacks Rank #3.

Ares Capital Corporation (NASDAQ:ARCC) has an Earnings ESP of +1.10% and carries a Zacks Rank of 3. The company is slated to release results on Feb 12.

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