Ally Should Recover With Broader Economy, Morgan Stanley Says In Upgrade Note

Ally Financial Inc ALLY will benefit from an economic recovery, as it will create more jobs and therefore spur more driving and higher auto sales, according to Morgan Stanley.

The Ally Analyst

Betsy Graseck upgraded Ally Financial from Equal-weight to Overweight and raised the price target from $23 to $26.

The Ally Thesis

With the economy reopening, the unemployment rate is likely to peak at 17% in May and then decline to 10.7% in September and to 9% in December, which improves the outlook for a bottom in consumer credit, Graseck said in the Thursday upgrade note. (See her track record here.)

Fiscal stimulus has driven personal savings rate to 13.1%, lowering consumer loan losses, the analyst said.

As driving trends resurge, there will be an increase in vehicle demand, she said

The pandemic is trigerring a shift from public transit to self-owned vehicles, Graseck said.

Both trends support the outlook for used car prices, the analyst said.

Commentary from auto dealers and lenders suggests “auto sales are bouncing firmly off the bottom,” which improves the outlook for loan growth, she said.

The analyst further wrote that Ally's shares are pricing in much higher losses than expected, offering “an entry point for a stock that has been cut in half since the February announcement of the CardWorks acquisition and economic lockdown.”