Ally Financial shares fall after Wells Fargo downgrades due to NIM margin pressure (NYSE:ALLY)
Allied Financial (NYSE: ALLY) Inventory slipped 2.9% Friday before market after Wells Fargo analyst Don Fandetti downgraded the consumer credit stock to equal weight from overweight as an uncertain macro environment weighs on the consumer financial sector in general, with some specific headwinds for Ally.
The analyst points to an accelerating decline in used vehicle prices, net interest margins under pressure from Federal Reserve rate hikes and consumers facing headwinds from inflation.
“A key driver of our near-term lower estimate is the reduction in the NIM as ALLY’s assets (primarily fixed rate retail auto loans) revalue more slowly than their deposit funding,” wrote Fandetti in a note to customers.
Additionally, used vehicle prices have started to decline and the analyst expects the pace of decline to accelerate over the next 12 months. “While ALLY says used vehicle momentum is not contributing to earnings on a net basis, we believe investors will continue to worry as values decline,” he said.
It cut its third-quarter adjusted EPS estimate for Ally (ALLY) to $1.70, below consensus of $1.81, and cut its 2023 adjusted EPS estimate by $0.60 to $6.50 $.
Fandetti’s Equal Weight rating is consistent with Hold’s Quant rating and deviates from Buy’s average Wall Street rating and SA’s average author rating.
SA contributor Harrison Schwartz sees Ally (ALLY) bankruptcy risk rising as auto market declines