CACC - Ally Financial: Buy Rating In Anticipation To Policy Movements

2024-03-20 04:49:02 ET

Summary

• Ally's financial results suffered from interest rate hikes, leading to lower net interest income, net interest margin, and increased efficiency ratio.
• With an anticipated decline in interest rates, the company could benefit from increased demand for auto loans from customers with high credit scores who currently find the rates unattractive.
• Anticipating a dovish scenario and considering its superior valuation compared to its closest competitor, I rate Ally stock as a buy.

Ally Financial (NYSE:ALLY) is a dominant player in the auto loan space; that's their core business. They aim to obtain net interest income from auto loans in addition to selling insurance on autos. 88% of their revenues come from those two verticals, while the remaining includes sources such as mortgages and corporate finance, which remain a small part of Ally's business. In this analysis, I will go through Ally's financial results and illustrate how the interest rate hike regime affected their numbers and key metrics. In addition to discussing the stock movements, I'm comparing it against its major competitor, and laying out their underlying risks and outlook to come up with a BUY rating....

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