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Further Reading from MarketBeat
Ally Financial Is Back to Basics—And Investors Are WatchingSubmitted by Peter Frank. Publication Date: 5/13/2026. 
Key Points
- Ally’s earnings rebound reflects improving credit trends, stronger deposits, and a renewed focus on auto lending.
- The company exited riskier businesses to simplify operations and strengthen its balance sheet.
- Investors still face risks tied to used-car values, consumer credit quality, and intense banking competition.
- Special Report: Elon Musk: This Could Turn $100 into $100,000
Ally Financial (NYSE: ALLY) is rediscovering its roots, and that return to its former self is paying off. After paring back a previous expansion into a variety of consumer products, the auto lender and digital bank is reporting solid profits, improved margins, stronger deposits, and lower charge-offs. But the turnaround carries its own risks.
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Heavy exposure to used-car values and to consumer health within its more focused portfolio means a cyclical downturn could hit even harder. For investors, the question is not whether Ally has rebounded, but whether the recovery makes the stock worth buying now. Ally’s Earnings Recovery Gains MomentumAlly’s latest results show the depth of its comeback. After reporting a $253 million loss in last year’s first quarter, Ally swung to a $291 million profit in this year’s first three months. Adjusted earnings per share came in at $1.11, nearly double the 58 cents reported a year earlier and well above analyst expectations. Adjusted total net revenue reached $2.2 billion, up 6% year over year and also better than expected. Its net interest margin, or the spread between what Ally earns on loans and what it pays on deposits, improved to a strong 3.52%. On the credit side, a source of previous investor anxiety, the outlook is stabilizing. The amount of loans Ally wrote off as uncollectible was 1.2% of loans and finance receivables, while retail auto charge-offs were 1.97%. Both improved from a year ago as used-car values steadied and tighter underwriting showed up in the numbers. Although its provision for credit losses did rise to $467 million, the increase was largely due to a year-ago adjustment. Overall, with $193 billion in assets, the digital bank showed a solid foundation that continued after a strong fourth quarter. Ally ended the first three months with $146 billion in retail deposits and added 74,000 net new customers, bringing year-over-year (YOY) customer growth to roughly 6%. Ally Is Returning to Its Auto Lending RootsThe current turnaround feels like déjà vu. Investors may remember Ally as the former GMAC Bank before it became Ally in 2010. Now, it is repositioning itself once again to return much of its focus to the auto lending business that made it successful as GMAC in the first place. The company has spent more than a year cleaning house. In January 2025, Ally agreed to sell its credit card business as part of its plan to exit non-core, higher-risk segments. By offloading the $2.3 billion portfolio, it removed credit volatility and reallocated capital. Several months later, Ally also left the mortgage origination business. This year, the company took further steps to clean up its balance sheet. The company redeemed $1.35 billion in Series B preferred shares and issued $1 billion in new Series D preferred stock in May. Although the rate paid on the earlier shares was lower, it was issued five years ago and was likely due to reset. By locking in new preferred stock at 7.1%, the company was able to reduce its preferred shares while maintaining a healthy common equity Tier 1 capital ratio of 10.1%. The Auto Finance Business Remains the Core Growth DriverThis pared-down focus has the company operating two core franchises: an auto-finance business that funds car loans through a vast dealer network, and a digital bank that offers high-yield rates. Those deposits now fund about 88% of the company’s balance sheet, providing a cheaper source of funding for its loans. Despite heavy competition from automaker lenders and large bank rivals, Ally’s auto business is still going strong. The company generated $11.5 billion in consumer auto originations, supported by roughly 4.4 million loan applications. Consumer auto originations of $11.5 billion included $7.5 billion of used retail volume, or 66% of total originations. The net financing revenue from this business, excluding some accounting adjustments, came in at $1.607 billion, up $114 million from a year earlier. Wall Street Sees More Upside AheadAlly’s turnaround has Wall Street analysts cautiously optimistic. The consensus rating on the company is Moderate Buy, with 14 Buy ratings and just two Holds among analysts. The average 12-month price target sits at $54.14. That represents healthy upside for a stock that has not kept pace. Down about 6% since the start of the year, Ally still needs to convince investors its turnaround is real. It has continued its regular common dividend of 30 cents per share, and it bought back $147 million in shares during the fourth quarter. As for 2026 guidance, the company expects solid improvements in many of its metrics. Economic Risks Could Still Derail the RecoveryWhether that show of confidence is enough to turn around the stock remains to be seen. Real risks remain. Ally is increasingly dependent on used-car values and consumer credit health. If the economy softens and unemployment rises, delinquencies and charge-offs could climb again. Competition is also a constant headwind. Ally faces captive lenders backed by major automakers. Large banks in the financial sector, like JPMorgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC), treat auto lending as a relationship product. And in deposits, Ally’s digital bank competes with Capital One (NYSE: COF) and other online platforms that often match or exceed its rates. Still, the past couple of quarters have been promising. The digital bank is growing steadily, and returns are moving in the right direction. For investors who see used cars and credit as part of the American dream, Ally offers a combination of a tangible dividend, improving fundamentals, and a valuation based on the last two years rather than the promise of the next two. |
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