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Ally Financial's (ALLY) Stock Up 4.2% on Q3 Earnings Beat

Shares of Ally Financial Inc. ALLY increased 4.2% following the release of the company’s third-quarter 2017 results. Adjusted earnings of 65 cents per share surpassed the Zacks Consensus Estimate of 57 cents. Also, earnings increased 16.1% from the prior-year quarter.

Results benefited from an increase in total net revenues, partially offset by higher expenses. Capital ratios improved on a year-over-year basis in the quarter. However, higher provision for loan losses was a headwind.

Net income available to common shareholders (GAAP basis) was $282 million or 63 cents per share, increasing from $209 million or 43 cents registered in the prior-year quarter.

Revenues & Expenses Increase

Total net revenue for the quarter increased nearly 5.6% year over year to $1.46 billion, owing to a rise in net financing revenue. The Zacks Consensus Estimate for revenues was also $1.46 billion.

Total non-interest expenses increased 2.4% year over year to $753 million. The rise was due to an increase in compensation and benefits expense, and other operating expenses.

Credit Quality Deteriorates

Non-performing loans of $807 million were up 7.2% year over year. Moreover, provision for loan losses surged 21.7% year over year to $314 million.

Strong Balance Sheet, Capital Ratios Improve

Total finance receivables and loans amounted to $117.59 billion as of Sep 30, 2017 compared with $119.30 billion as of Jun 30, 2017. Deposits totalled $90.12 billion, increasing from $86.18 billion as of Jun 30, 2017.

As of Sep 30, 2017, total capital ratio came in at 13.2%, increasing from 12.8% registered in the prior-year quarter. Similarly, Tier I capital ratio was 11.5%, up from 11.1% as of Sep 30, 2016.

Share Repurchases

During the quarter, the company repurchased shares worth $190 million.

Our Take

Ally Financial’s high debt levels may restrain its ability to procure additional funds for working capital, acquisitions or other purposes. This may also negatively impact the company’s access to liquidity and increase borrowing costs in the unsecured market.

Further, mounting expenses might hurt bottom-line growth, going forward.

Ally Financial Inc. Price, Consensus and EPS Surprise

Ally Financial Inc. Price, Consensus and EPS Surprise | Ally Financial Inc. Quote

Currently, Ally Financial carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Finance Companies

Among others, Capital One Financial Corporation COF reported third-quarter 2017 adjusted earnings of $2.42 per share, which handily outpaced the Zacks Consensus Estimate of $2.15. Results benefited from higher revenues and easing margin pressure. Also, the quarter witnessed a rise in loan balance. However, increase in provisions and expenses acted as headwinds.

Sallie Mae SLM reported third-quarter 2017 core earnings of 17 cents per share, in line with the Zacks Consensus Estimate. Earnings growth was supported by an increase in net interest income. The private education loan portfolio and deposits grew considerably. However, these positives were offset by lower non-interest income, higher expenses and rise in provision for loan losses.

Navient Corporation’s NAVI third-quarter 2017 core earnings per share of 55 cents surpassed the Zacks Consensus Estimate of 50 cents. Results of Navient reflect higher non-interest income. However, on the downside, the company recorded reduced net interest income and higher expenses.

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