So far today, headlines about Ally Financial Inc.’s initial public offering have been focused on its slipping price. The stock was priced on the low end of the range last night at $25 and so far, on its first day of trading, it’s been hovering close to $24.
Nonetheless, noted BTIG analyst Mark Palmer had earlier put a $31-12-month target price on the stock. He cited the low funding costs and other cost-cutting measures among the reasons why Ally will be a vital force in the auto finance space.
Palmer told Auto Finance News in an email, “We believe Ally is a ‘show me’ story for many equity investors insofar as the company is promising to increase its return on equity from 3% to over 10% over the next couple of years, and that comes down to execution.”
He said if the company demonstrates progress toward its profitability goal, BTIG believes the stock could trade up into the low-$30s over the next 12 months.
When asked about concerns related to the impact of Santander Consumer USA’s weaker-than- expected performance on Wall Street to date, Palmer says the two companies are very different animals.
“Santander’s return on equity is almost 30% and its stock trades at 3x book value. Ally’s return on equity is 3% and it trades at around 1.1x book,” said Palmer.
He said Santander’s story is more about maintaining its high returns while growing its Chrysler business, while Ally’s story is about improving returns through cost reductions in funding and structural operations.
