Ally Financial Inc. (NYSE: ALLY) saw its stock plummet by as much as 18% today following comments from Russell Hutchinson, the company’s Chief Financial Officer.
Hutchinson attributed the sharp decline to escalating credit challenges driven by rising inflation and a higher cost of living.
In recent months, delinquencies in Ally Financial’s retail auto segment have exceeded expectations by 20 basis points, causing concern among investors.
Additionally, Hutchinson highlighted a “weakening employment picture” that has begun to impact the company’s borrowers, as revealed at a financial conference on Tuesday.
The NYSE-listed firm is also grappling with a class action lawsuit related to a data breach, adding to its troubles. As a result, Ally Financial’s stock is down approximately 30% from its year-to-date high on July 31st.
RBC sees an upside in Ally Financial stock to $49
Ally Financial noted an increase in net charge-offs that exceeded its own estimates by 10 basis points in July and August.
The management had previously guided for an up to 15 basis points of margin expansion for the third quarter but now expects that metric to decline sequentially as well.
Still, there’s reason to believe that the sell-off in its stock price this morning may be an opportunity to buy. To begin with, RBC analysts continue to see upside in ALLY to $49 that indicates potential for a more than 50% gain from here.
Today’s update, the investment firm agreed, is a disappointment but reiterated its bullish view as “this all seems manageable”. RBC’s optimism on Ally Financial stock is shared by Warren Buffett as well who currently has a 9.5% stake in the consumer lender based out Detroit, Michigan.
ALLY pays a healthy dividend yield of 3.59%
In July, Ally Financial reported 97 cents a share of earnings for its second financial quarter that handily topped Street estimates.
The New York listed firm added 54,000 net new deposit customers to end its recent quarter with 3.2 million customers in total – up 11% on a year-over-year basis that indicates solid demand for its services.
ALLY is the largest in the league of all-digital US banks, which gives it a meaningful benefit over the conventional banks that are only beginning to step into digital services.
Lastly, Ally Financial is a dividend stock that yields a rather impressive 3.59% at writing. Investing in it on the weakness today will, therefore, position you for reliable total returns even if the US economy slows down in the months ahead.
It is also noteworthy that this financial services company has not missed a dividend payment since 2016. Since then, it has increased its dividend by a whopping 275%. So, it’s track record with dividend payments is brilliant compared to other financial stocks.
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