Ally Financial To Gain From NIM Recovery Amid Lower Tax Rate, Analyst Sees CEO Transition Soon

BMO Capital Markets analyst James Fotheringham reiterated the Market Perform rating on Ally Financial Inc. ALLY, raising the price target to $37 from $36.

Despite Ally Financial’s fourth quarter small low-quality beat, the analyst lowered near-term estimates by -7%, which is lower than previously modeled NII (slower loan growth) and is only partially offset by lower expected costs (non-interest and tax-related), the analyst writes.

As per the analyst, the company’s fourth-quarter adjusted EPS of $0.45 beat the consensus of $0.44 by +2% due to slightly lower-than-expected compensation costs and higher fees. 

The company’s full-year guidance implies lower-than-expected NIM, higher loan losses, and slower loan growth, partly offset by higher other revenues and lower operating costs.

Ally Financial’s reaffirmed mid-term outlook for NIM 4%, EPS $6, and RoTCE mid-teens compares with 2025E consensus forecasts for NIM 3.78%, EPS $5.34, and RoTCE 13.7%.

However, the analyst adds that full-year and mid-term guidance is subject to change with CEO transition, which is expected soon.

The analyst lowered the core EPS estimate by -7% in 2024E (to $3.27 from $3.51).

 In contrast, the analyst raised the 2025E EPS estimate by +4% (to $5.69 from $5.48) due to expected NIM recovery and a lower tax rate. 

Overall, the company’s earnings are highly sensitive to potential NIM benefits from putatively lower interest rates; however, the analyst adds that slowing loan growth and rising credit costs could partially offset the top-line benefits of higher NIM.

Price Action: ALLY shares are trading higher by 0.17% to $36.38 on the last check Tuesday.