At the current price of $41, what are market expectations regarding Ally Financial’s future operating performance? Over the next 6 years, Ally Financial shares will need to reach $68 to achieve average annual stock market performance of 9.0%. To achieve Upper quartile performance, Ally Financial’s stock price will need to reach $80 by 2029.
Executive Summary
- Ally Financial’s important characteristics: high expected growth, low profitability, low financial strength, and low stability. A big positive influence on Ally Financial’s valuation is its superior Growth.
- Very high valuation, leading shareholder returns. Current valuation levels are very high relative to the Ally Financial Peer Group. Recent market returns have significantly outperformed the Ally Financial Peer Group. Total shareholder returns expected to significantly beat the overall equity market. Based on current investor expectations, Ally Financial shares should reach a level of $222 by 2029 — an 34.8% per year total shareholder return. A 2029 stock price of $68 would reflect median performance and a price of $80 would be required to reach upper quartile performance.
- Growth has been Ally Financial’s biggest valuation strength. Historical growth has been very high relative to the Ally Financial Peer Group and forecasted growth is relatively very high. Asset Growth, and Revenue Growth have been superior. These factors have buoyed market perceptions of Ally Financial. Ally Financial’s historical income statement growth and balance sheet growth have diverged. Revenue growth has exceeded asset growth; earnings growth has fallen short of equity growth driving erosion in return on equity. Ally Financial’s consensus growth expectations are in line with past growth.
- Asset Turnover is group leading. Pretax Margin, and Pretax ROA are group lagging. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
- Ally Financial’s risk profile is unfavorable. Overall variability has been only average with only average revenue variability, above average E.P.S. variability, and very high stock price volatility. Financial Strength is below average and earnings’ expectations are only average. The debt/capital ratio has been relatively steady.
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