Ally Financial (ALLY 0.41%) beat Wall Street earnings estimates and announced a divestiture that will boost its capital reserves. Investors cheered the results, sending shares of Ally up nearly 10% as of noon Eastern on Friday.
A solid report in a difficult period
2023 was a challenging year for most financial services companies and a particularly treacherous one for auto lenders like Ally. Rising rates left banks scrambling to reprice loans and attract deposits, and the post-pandemic normalization in used car prices following a huge surge left many auto loans underwater.
Ally seems to be navigating the challenges fine. The company earned $0.45 per share in the fourth quarter on revenue of $2 billion, surpassing Wall Street expectations for $0.44 per share in earnings on $1.99 billion in revenue.
The company also announced a deal to sell its point-of-sale financing business, including about $2.2 billion of loan receivables, to Synchrony Financial. The business to be sold includes relationships with nearly 2,500 merchant locations, primarily in the home improvement and healthcare sectors, and supports more than 450,000 active borrowers.
Ally said the sale would boost its common equity Tier 1 ratio by about 15 basis points and add "modestly" to tangible book value and per-share earnings in 2024. As importantly, CEO Jeffrey Brown said the deal "allows us to continue to be disciplined in allocating capital to optimize risk-adjusted returns as we manage through a dynamic operating environment."
Is Ally a buy heading into 2024?
The dynamic operating environment Brown references and the dynamic environment inside Ally are what investors are focused on. Last October, Ally announced that Brown would be departing for the top job at the privately held Hendrick Automotive Group, with the company appointing 30-year Ally veteran Doug Timmerman as interim CEO while a permanent replacement can be found.
The issues in the auto market appear to be working in Ally's favor, with CFO Russ Hutchinson saying that over the past year, some auto lenders have pulled back and pricing pressures have eased. But Ally must still navigate both the CEO transition and an ever-changing market in the quarters to come.
There is risk here, but by all accounts, Ally is managing them well. The near-term outlook could be turbulent, but for long-term-focused investors, the future for Ally looks bright.
