Where Will Ally Stock Be in 5 Years?

Core Insights - Ally Financial experienced significant benefits during the COVID-19 pandemic, with timely repayments on automotive loans and increased interest in online banking due to low interest rates and reduced spending on travel [1] - In 2022, the company faced challenges as rising interest rates increased costs for retaining depositors and negatively impacted automotive loan repayments, leading to a decline in earnings per share (EPS) and stock performance [2] - The company is now potentially on a recovery path with falling interest rates and a normalization of the automotive market [3] Business Strategy - Ally Financial is refocusing its operations by selling its credit card business and ceasing new home mortgage loans, allowing it to concentrate on automotive loans and insurance for dealer partners [5] - The company originated nearly $40 billion in car loans in 2024, with improved performance metrics in retail automotive loans compared to 2022 and 2023, indicating a positive trend in its lending operations [6] Deposit Growth - Ally has historically seen consistent growth in customer acquisition and deposits, which are crucial for funding lending operations [7] - However, deposit growth has slowed, with retail deposits increasing from $135 billion at the end of 2021 to $143 billion by the end of 2024, attributed to Federal Reserve interest rate hikes and competition from other banks [8] - The company is expected to benefit from the stabilization of interest rates, which may lead to increased customer acquisition and deposit growth in the coming years [9] Earnings Outlook - Currently, Ally's stock has a price-to-earnings (P/E) ratio of 15, with depressed earnings due to recent challenges; EPS was $2.60 over the last 12 months compared to over $7.50 at its peak in 2021 [10] - The company is projected to achieve an EPS of $5 or higher within five years, driven by shedding non-core operations and improving its automotive loan portfolio [11] - At an EPS of $5, the stock would trade at a P/E under 8, indicating potential for price appreciation and attractive returns, especially with a dividend yield of 3% [12]