2025 Might Mark a Significant Shift for This Fintech Company's Trajectory
Ally Financial, represented by the ticker symbol ALLY (-2.69%), has had a rocky year, with concerns over rising defaults and demand affecting the bank's stock performance. However, the company's recent announcements hint at a potential turnaround in the near future, particularly in 2025.
Ally is refocusing its efforts back to its core businesses: dealer financing, corporate financing, and consumer banking. To achieve this, the company is selling its $2.3 billion credit card portfolio to CardWorks, ending new mortgage applications as of January 31, and performing a workforce reduction resulting in projected annual savings of $60 million.
By refocusing on its core business lines, Ally benefits as a market leader in new auto financing. Despite strong credit quality, the company's average yield on a newly originated auto loan in 2024 was an impressive 10.4%. Ally's application volume also rose by 6% year over year, signaling growing demand.
In addition to its strong presence in auto lending, Ally's insurance business had its best quarter of earned premiums since the IPO in the fourth quarter of 2024. On the retail side, the bank holds $143 billion in consumer balances and boasts a customer retention rate of 95%.
Recent results continue to look promising as Ally beat earnings expectations in the fourth quarter, with a net interest margin up by one basis point sequentially. The sale of the riskier credit card business has been well-received by investors, yet it represents only a small portion of the company. Ally anticipates profitability to improve even further in 2025.
Ally's 2025 guidance includes forecasting a net interest margin (NIM) range of 3.4%-3.5%, even after selling its high-interest credit card business. This would represent an improvement over the 3.33% NIM in the fourth quarter. Additionally, Ally expects an automotive net charge-off (NCO) rate of 2% to 2.25% in 2025, significantly lower than the 2.34% NCO rate in the fourth quarter.
Looking beyond 2025, Ally could enjoy substantial tailwinds with the potential for interest rate cuts. Lower interest rates generally lead to higher demand for auto loans and could boost Alloy's profitability. Moreover, the policies of the Trump administration, such as less regulation and a proposed corporate tax rate of 15%, could benefit Ally as well.
In summary, Ally is making strategic shifts to its core business lines, demonstrating strong results in auto lending and insurance, and positioning itself to capitalize on potential tailwinds in 2025 and beyond. The stock currently trades at a lower valuation than its peers, which could make it an attractive investment opportunity.
With Ally's strategic focus on its core businesses, individuals looking to invest in the finance sector might consider this company due to its promising outlook. The anticipated improvement in profitability, as hinted by Ally's 2025 guidance, could potentially yield significant returns on investment.
Investors might find Ally Financial an appealing choice as the company continues to benefit from its strong position in auto lending and the insurance sector, while also having the potential to capitalize on potential interest rate cuts in the future.
