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Ally Financial Downgraded by Piper Sandler on Auto Headwinds and Funding Costs

Published 07/25/2022, 01:16 PM
Updated 07/25/2022, 01:25 PM
© Reuters Ally Financial Financial Downgraded by Piper Sandler On Auto Headwinds and Funding Costs

By Sam Boughedda

Ally Financial (NYSE:ALLY) was downgraded to Underweight from Neutral by a Piper Sandler analyst on Monday.

The analyst, who also lowered the firm's price target to $34 from $45 following its second-quarter earnings, stated they downgraded the stock based on auto market headwinds and higher funding costs.

"We believe the current macro-economic outlook will present material headwinds for ALLY due to rising default rates and a sharp increase in funding costs," said the analyst. "We note ALLY has increased the advertised rate on savings deposits by 75 bps over the past three months and 30D+ DQ rates are up ~50% Y/Y. These adverse trends are likely to continue for the next several quarters and present a material headwind to earnings."

The analyst added that leverage is relatively high compared to peers and past cycles, implying the company has limited flexibility if there are sudden adverse movements in the market.

"We note our rating is relative to other stocks within our coverage and largely reflects the risks we see developing for auto lenders with rising funding costs," he concluded.

Ally Financial dipped in the early part of Monday's session but has regained most of its earlier losses, now trading 0.5% below Friday's close.

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