Ally Financial, Inc. (ALLY, Financial) will release its second quarter 2014 earnings before the bell on Tuesday, July 29, 2014. The earnings conference is scheduled for 9:00 a.m. EDT. The conference will be broadcast live from the company website at http://www.ally.com/about/investor/events-presentations/index.html. You can attend the live conference via telephone by calling the toll-free number at 1-800-688-0836 (or +1-617-614-4072 for international attendees) and entering the code 17921308.
Ally Financial provides automobile financing for approximately 16,000 automotive dealerships and four million individual customers. Based in Detroit, Michigan, Ally Financial went public on April 10, 2014. Prior to that, the bankruptcy court approved the company’s reorganization plan on December 11, 2013.
Analysts Expect:
- EPS ranging from $0.29 to $0.35 with a target of $0.33
- Revenue ranging from $797 million to $862 million with a target of $841.40 million
Company Performance
Ally Financial has trimmed its expenses and increased its net income over the past 12 months. Gross profit came in at $2.233B for Q1 2014 compared to $2.250B reported in Q4 2013. However, the net income reported for Q1 2014 was $227M, which was $123M higher than the $104M of net income reported in Q4 2013. However, the post-IPO EPS disappointed analysts and investors when it came in at $0.33 instead of the expected $0.42. Ally Financial is still paying off the 2008 $17.2 billion dollar bailout loan from the federal government. When Ally Financial went public, the company still owed the TARP program $1.9 billion.
Ally Financial faces new competition as high-interest car loan rates lure new companies into the automotive financing market. Sub-prime auto loans are a lucrative but risky source of income due to the borrower’s poor credit. Although Ally Financial counts General Motors (?GM) and Chrysler among its top customers, the company must increase its dealership base if it wants to remain competitive.
| Revenue | Q1 2014 | Q4 2013 | Q3 2013 | Q2 2013 |
| Total Revenue | $2.396B | $2.415B | $2.410B | $2.410B |
| Gross Profit | $2.233B | $2.250B | $2.247B | $2.248B |
| Net Income | $227M | $104M | $91M | ($927M) |
Recent Events
On July 18, 2014, Ally Financial declared a quarterly dividend payable on two classes of its preferred stock: Ally's Fixed Rate Cumulative Perpetual Preferred Stock, Series G, and Ally's Fixed Rate/Floating Rate Perpetual Preferred Stock, Series A. The dividends will be paid on August 1, 2014, for both classes of preferred stock.
On May 30, 2014, Ally Financial announced that it would redeem its 10.30% deferred interest debentures that mature on June 15, 2015. The early redemption cost the company $536.2 million and occurred on June 15, 2014.
Competitors
Ally Financial’s primary competitors are Bank of America Corp., (?BOA), Capital One Financial Corp., (?COF) and World Acceptance Corp (?WRLD). Of the four companies, only Ally Financial posts a negative profit margin and a negative EPS. Although World Acceptance Corporation has a smaller market cap and earns less revenue, it posts a strong profit margin and high EPS.
| Ă‚ | ALLY | BAC | COF | WRLD |
| Share Price | $24.04 | $15.50 | $81.44 | $81.30 |
| Market Cap | $11.5B | $164.0B | $45.9B | $783.5M |
| Revenue (TTM) | $9.7B | $99.2B | $23.7B | $622.7M |
| Profit Margin (TTM) | -8.43% | 9.32% | 23.12% | 17.03% |
| P/E (TTM) | ---- | 24.6 | 11.1 | 8.6 |
| EPS (TTM) | $-0.87 | $0.63 | $7.33 | $9.49 |
Analyst Opinions/Technical Considerations
Despite the improved financials, analysts remain neutral on Ally Financial. Since the IPO debut, the stock has meandered between $23.25 and $25.25 in range-bound trading. Short-term technical indicators point to a short-term bullish trend. The 4-day, 9-day and 18-day triple moving average crossover indicates a bullish trend. The weekly stochastic and MACD confirm this short-term bullish trend. However, both the 21-day and 50-day moving average indicate an intermediate bearish trend. Due to lackluster company financials and the absence of a clear trading trend, Ally Financial is not a prudent investment at this time.
