Ally Financial downgraded to Underweight (Piper) As Auto Lending faces headwinds

Piper Sandler analyst Kevin Barker downgraded Ally Financial (NYSE:ALLY) stock to Underweight from Neutral on Monday due to rising default rates and a sharp rise in funding costs.

“We note ALLY has increased the advertised rate on savings deposits by 75 bps over the past three months and 30-day+ delinquency rates are up ~50% Y/Y,” Barker wrote in a note to clients. “These adverse trends are likely to continue for the next several quarters and present a material headwind to earnings.”

He also pointed out that Ally Financial’s (ALLY) leverage is relatively high vs. its peers and previous cycles, which indicates the company has limited flexibility in the event of sudden adverse market movements.

Its valuation looks attractive, but Barker sees limited catalysts. The analyst could become more positive on the stock if the Federal Reserve pulls back on rate hikes and if rates across the curve were to fall.

Ally (ALLY) shares are falling 0.8% in Monday midafternoon trading. The Underweight rating is more bearish than the Quant rating of Hold and contrasts with the average SA Author’s rating of Buy and the average Wall Street rating of Buy.

SA contributor Tim Travis, by contrast, has a Strong Buy rating on Ally (ALLY), citing its sustainable 16%-18% ROTCE