BofA Securities analyst Brandon Berman upgraded Ally Financial Inc. (NYSE:ALLY) to Buy from Neutral and raised the price target to $46 from $42.

The analyst expected the recent balance sheet initiatives to help reduce future earnings volatility. 

Berman saw limited risk to net interest income (NII) estimates if the Fed doesn’t cut rates in FY24 and the benefit from rate cuts to have a muted impact on net interest margin (NIM) in FY24.

The analyst forecasted fourth-quarter FY24 NIM of 3.57% (assuming three rate cuts) vs. 3.4%-3.5% guidance.

The analyst expected losses to peak in the second quarter of FY24 as they have materialized faster than those of the broader industry and are still rising, and it is more exposed to credits across the spectrum.

In the first quarter of FY24, the analyst estimated EPS of $0.23 vs. consensus $0.40 and expected NIM of 3.13% (down 7bps Q/Q) thanks to a 5 bps increase in deposit costs and softer lease yields.

Berman estimated EPS of $2.99 in FY24 (vs. consensus: $3.02), $6.18 in FY25 (vs. street view of $5.30) and $6.49 in FY26 (vs. $6.30 consensus).

Investors can gain exposure to the stock via Invesco S&P Ultra Dividend Revenue ETF (NYSE:RDIV) and Nuveen ESG Mid-Cap Value ETF (BATS:NUMV).

Price Action: ALLY shares are up 1.10% at $38.99 at publication Tuesday.

Also Read: Ally Financial Taps Discover Financial Services Head Michael Rhodes As Its New CEO

Photo: Courtesy Ally Financial