Ally Financial: The Tugboat of Auto Finance Keeps Gaining Steam

Key Points

• Ally Financial beat its Q4 2024 EPS by 21 cents while revenues rose 3.6% YoY.
• Ally Financial is selling its credit card business and no longer taking any more mortgage loan applications as of Jan 31, 2025, to focus on its core business.
• Ally Financials’ CEO bought $1 million worth of stock in the last week of January 2025.

Ally Financial Inc. NYSE: ALLY is a digital financial services company specializing in automobile loans. They were originally the financial arm of General Motors Inc. NYSE: GM. The finance sector company has since expanded its services to include digital banking, investing, home loans, and insurance products. The finance sector company has been resilient through bull and bear markets, which is analogous to a tugboat. The company is selling its credit card business to CardWorks, and the CEO has just purchased $1 million worth of stock. Could this be a signal to buy shares?

Notable Actions in Q4

In the fourth quarter of 2024, Ally reached an agreement to sell its credit card business to CardWorks, incurring a $118 million partial goodwill impairment excluded from adjusted metrics. The purpose of the divestiture is to enable Ally to be more focused on its core business. The company will also cease new mortgage loan applications on Jan 31, 2025. However, it will continue to service a high credit quality portfolio during the run-off. The recent workforce reduction is expected to deliver $60 million in annual savings, but $22 million of restructuring costs are excluded from adjusted metrics.

Ally Financial reported EPS of 78 cents, beating consensus estimates by 21 cents. Revenues rose 3.6% YoY to $2.09 billion, beating the $2.02 billion consensus estimates.

CEO Comments During Q4 2024 Conference Call

Ally Financial CEO Michael Rhodes has been on the job for eight months. During his evaluation, his team decided to sell the credit card division to allow greater focus on delivering mid-teen returns in its core business. Rhodes also decided to cease new mortgage loan originations on Jan 31, 2025, expecting the remaining balances to run off; the mortgage portfolio yields just over 3%. The workforce reduction in Q4 resulted in a $22 million restructuring charge but is expected to contribute more than $60 million in annualized savings.

Record Car Loan Applications in Q4

During Q4, $39 billion in consumer originations were sourced from a record 14.6 million applications. Origination yields were 10.4%, driven by strong application flow. Of the originations, 44% were made of the highest credit quality tier, positioning them for strong risk-adjusted returns in the coming years. Insurance written premiums of $1.5 billion were the highest since becoming a public company. Its Corporate Finance segment delivered a record pretax income of $400 million, which is a return on equity (ROE) of 37% and with zero net charge-offs. As for its digital banking, Ally added over 230,000 new customers for a total of 3.3 million depositors with $143 billion in balances.

CEO Rhodes concluded, “We are pivoting to a more focused approach that allocates capital to our core businesses where we have a competitive advantage; it prioritizes efficiency and expense discipline and prudently manages risk. I am confident that this should translate to mid-teens ROTCE over time.” ROTCE stands for return on tangible common equity. An SEC filing on Jan 29, 2025, indicates CEO Rhodes purchased 25,634 common shares of Ally Financial for just over $1 million.

ALLY Stock Is in a Descending Triangle Pattern

A descending triangle is normally a bearish chart pattern. It is comprised of descending (falling) upper trendline resistance capping bounces converging with a flat-bottom lower trendline that provides a floor on pullbacks. A breakdown triggers if the stock falls below the lower trendline support. However, a breakout can trigger if the stock surges up through the upper trendline resistance.

ALLY formed a descending upper trendline resistance at the $41.49 swing high to converge with the flat-bottom lower trendline support near the $38.31 Fib and post-earnings gap fill levels. The daily anchored VWAP support is $38.48, and the daily RSI may be starting to fall at the 57-band. Fibonacci (Fib) pullback support levels are $38.31, $37.49, $35.64, and $32.98.

ALLY stock’s average consensus price target is 12.19% higher at $43.76, and its highest analyst price target sits at $56.00. It has nine analysts' Buy ratings, nine Holds, and one Sell Rating. The stock has a 2.31% short interest.

Bullish investors can consider using cash-secured puts at the Fib pullback support levels to buy the dip. If assigned the shares, then writing covered calls at upside Fib levels executes a wheel strategy for income.