Oppenheimer Sees 'Good Long-Term Opportunity' In Ally Financial

Ally Financial Inc (NYSE: ALLY) is scheduled to report fourth-quarter and full year 2017 results Jan. 30. 

The Analyst

Oppenheimer's Ben Chittenden initiated coverage of Ally Financial with an Outperform and $38 price target. 

The Thesis

Ally Financial is continuing to diversify its business, which should improve returns, Chittenden said in a Monday note. (See the analyst's track record here.)

The auto lender still trades below tangible book value, and with the shift of the balance sheet to higher-yielding assets, Chittenden said he sees a chance for an increase in profitability over the next few years and for more upside. Insurance premiums have turned back up, and Chittenden said he expects to see a modest additional improvement.

It takes time for a bank to move above its tangible book value, but there is a benefit of getting paid to wait, said Chittenden. He estimates that Ally Financial has the potential to pay out more than $1 billion per year in 2018 and 2019, which implies approximately a 10-percent potential capital return in 2019.

The Price Action

Ally Financial closed up 1.84 percent at $30.38 Tuesday. It has gained more than 50 percent in a year.