What's In Store For Ally Financial (ALLY) In Q1 Earnings?

Ally Financial Inc. (NYSE:ALLY) is slated to announce first-quarter 2017 results on Apr 27, before the market opens.

Last quarter, the company’s earnings beat the Zacks Consensus Estimate, reflecting an increase in revenues. These were partially offset by elevated expenses and a rise in provision for loan losses.

This translated into improved price performance for Ally Financial (shares gained 5.7% over the three months ended Mar 31, 2017). However, analysts don’t seem to be happy with the company’s business activities in the just concluded quarter, as evident from nearly 4% decline in earnings estimates over the last 30 days.

Further, Ally Financial’s first-quarter earnings estimates of 49 cents reflect a fall of 6.6% on a year-over-year basis. Nonetheless, the stock has a decent earnings surprise history, as evident from the chart below:

Factors at Play

Lower Used Vehicle Prices to Hurt Results: With management’s expectations of 7% year-over-year decline in used vehicle prices in the first quarter, Ally Financial’s earnings are likely to be affected to some extent as it primarily deals in auto loans.

Further, lease revenues must have fallen during the quarter owing to a smaller lease portfolio as well as lower used vehicle value.

Higher Rates to Support Net Interest Income (NII): Given the rise in interest rates and the company’s efforts to diversify into mortgage business, NII should have increased in the first quarter.

Operating Expenses to Rise: Ally Financial has been making efforts to grow inorganically, introduce new products and diversify operations. Given these strategies, the company should witness an increase in operating expenses. Management expects expenses to be in the range of $755–$765 million in the first quarter, up from $721 million in the prior quarter.

Provisions to Increase: Ally Financial expects provisions to be in the range of $280–$290 million during the quarter. This reflects a rise of 28–31% on a year-over-year basis.

Earnings Whispers

Our proven model does not conclusively show that Ally Financial is likely to beat earnings this quarter.. That’s because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as elaborated below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for Ally Financial is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 49 cents.

Zacks Rank: Ally Financial has a Zacks Rank #3, which increases the predictive power of ESP. However, we need a positive ESP to be confident of an earnings surprise.

Stocks to Consider

Here are a few finance stocks that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases:

Prosperity Bancshares, Inc. (NYSE:PB) has an Earnings ESP of +1.02% and it carries a Zacks Rank #3. The company is slated to release results on Apr 26.

SVB Financial Group (NASDAQ:SIVB) is scheduled to announce results on Apr 27. The company has an Earnings ESP of +0.54% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Waddell & Reed Financial, Inc. (NYSE:WDR) has an Earnings ESP of +2.50% and a Zacks Rank #3. It is scheduled to report results on May 2.

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