Ally Financial draws praise as well-positioned for soft landing in Citi's new 'buy' rating

By Steve Gelsi

Analyst Keith Horwitz initiates coverage of consumer-finance company at an attractive price

Ally Financial Inc.'s stock rose in premarket trading on Monday after Citigroup initiated coverage of the consumer-finance company with a buy rating as a name poised to benefit from a potential soft-landing in the economy.

Analyst Keith Horowitz said Ally Financial (ALLY) offers "the best way" to play an economic recovery within Citi's coverage universe due to "fixed rate asset repricing potential combined with a liability sensitive balance sheet."

While the stock currently trades at 1.1 times total book value, Citi analysts see a potential valuation of closer to 1.4x total book value "as we see several opportunities for management to improve returns and capital position faster and higher than expected."

Ally Financial's stock was up by 1.4% in premarket trading.

Horowitz said lower interest rates will benefit Ally's balance sheet with better pricing.

The company's "significant" fixed-rate-asset repricing is second only to KeyCorp (KEY) over the next two years, he said.

If the economy avoids recession, Ally Financial will benefit from an "improved competitive environment where new origination credit spreads are very attractive," Horowitz said.

Still, Horowitz said the stock seems "fully priced into 2025 consensus, and there are clearly risks to hitting that number due to slower balance sheet growth and credit costs where the bar is fairly low."

However, investors haven't fully priced in the company's likely performance in 2026.

"Our central case remains a soft landing, and we believe investors should clearly have exposure to this name as can see a case for $60 plus over next couple years if this plays out," Horowitz said.

Prior to Monday's action, Ally Financial's stock had risen 14% in 2024, compared to a 14.6% rise by the S&P 500 SPX.

-Steve Gelsi

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06-24-24 0903ET

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