Ally Financial Earnings: Lower Net Interest Margins Continue to Hurt Results While Credit Costs Rise

No-moat Ally Financial reported third-quarter earnings that were largely in line with our expectations, as deteriorating consumer credit and higher interest rates continue to pressure results. Net revenue decreased 2% from last year and 5% from last quarter to $1.97 billion. Earnings per share were flat at $0.88, which translates to a return on equity of 9.9%. However, this includes a tax benefit of $94 million, or $0.31 per share, during the quarter. As we incorporate these results, we do not plan to materially alter our $39 fair value estimate. We see the shares as undervalued on a full-cycle basis.