Why is Q3 Earnings Beat Less Likely for Ally Financial (ALLY)?

Ally Financial Inc. ALLY is slated to report third-quarter 2022 results on Oct 19, before the opening bell. While its earnings in the to-be-reported quarter are expected to have declined on a year-over-year basis, revenues are likely to have increased.

In the last reported quarter, the company’s earnings lagged the Zacks Consensus Estimate. Results were primarily hurt by a rise in expenses, a decline in other revenues and higher provisions. However, an improvement in net financing revenues was an offsetting factor.

Ally Financial has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 2.1%.

Ally Financial Inc. Price and EPS Surprise

Ally Financial Inc. price-eps-surprise | Ally Financial Inc. Quote

Key Estimates for Q3

The Zacks Consensus Estimate for ALLY’s net financing revenues (as reported) is pegged at $1.69 billion, suggesting 5.9% year-over-year growth. Our estimate for net financing revenues is $1.76 billion, suggesting a rise of 10.4%.

Looking at the fee income components, the consensus estimate of $293 million for insurance premiums and service revenues earned suggests a rise of 5% from the prior-year quarter. Our estimate for the same is $310.3 million, suggesting a year-over-year increase of 11.2%.

The Zacks Consensus Estimate for net gain on mortgage and automotive loans of $11.98 million indicates a decline of 33.4% from the previous-year quarter’s reported figure. Our estimate for the same is $13.1 million, indicating a decline of 27.4%.

The consensus estimate for net other gains on investments is pegged at $20.02 million, indicating a decline of 16.6%. The consensus estimate for net other income of $152 million suggests a 24.6% year-over-year rise. Our estimate for net other income is $165.1 million, implying year-over-year growth of 35.3%.

Due to an anticipated rise in most of the fee income components, total non-interest income is expected to have increased in the quarter. The Zacks Consensus Estimate for total non-interest income is pegged at $459 million, suggesting a year-over-year rise of 17.4%. Our estimate for total non-interest income is $450 million, implying a rise of 15.1%.

Management expects other revenues to be in the mid-$400-million range.

Coming to expenses, Ally Financial has been witnessing persistent growth in expenses over the past several quarters. As it launches products and seeks to expand into newer areas of operations, overall costs are likely to have been elevated in the third quarter. Our estimate for third-quarter non-interest expenses is $1.21 billion, indicating a rise of 21% from the prior-year quarter.

Earnings Whispers

According to our proven model, the chances of Ally Financial beating the Zacks Consensus Estimate this time are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Ally Financial is -0.14%.

Zacks Rank: The company currently carries a Zacks Rank #3.

The Zacks Consensus Estimate for the company’s third-quarter earnings is pegged at $1.75, which has been revised 1.1% lower over the past seven days. The figure indicates a decline of 19% from the year-ago quarter’s reported number. Our estimate for earnings is also $1.75.

The consensus estimate for sales is pegged at $2.15 billion, suggesting a year-over-year rise of 8.5%. Our estimate for the same is $2.21 billion, indicating a year-over-year rise of 11.3%.

Stocks That Warrant a Look

A couple of finance stocks, which you may want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases per our model, are Associated BancCorp ASB and BankUnited BKU.

The Earnings ESP for Associated BancCorp is +0.57% and it carries a Zacks Rank #3 at present. The company is slated to report third-quarter 2022 results on Oct 20.

BankUnited is also scheduled to release third-quarter 2022 earnings on Oct 20. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.32%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.