Detroit's Ally Financial Benefits From V-Shaped Auto Recovery, Says Morgan Stanley

Shares of Ally Financial Inc ALLY have more than doubled in value since bottoming at $10.22 in March, but the stock "still has more room to run," according to Morgan Stanley.

The Ally Financial Analyst

Betsy Graseck maintains an Overweight rating on Ally Financial's stock with a $26 price target.

The Ally Financial Thesis

Ally Financial's stock continues to look attractive and has further upside potential, as 55% of the country's GDP has yet to start to reopen, Graseck said in a Friday note. (See her track record here.)

Recent data points point to an encouraging outlook for the company's auto loan business, the analyst said. 

Weekly data from JD Power suggests the auto sector is experiencing a "V-shaped" recovery in sales, she said. Specifically, retail auto sales for the last week of May were down 12% versus a 59% trough in late March.

The used auto market is showing similar encouraging trends, including a "sharp" 21% month-over-month and 33% year-over-year decline in auto inventories, at 2.6 million vehicles. This figure is the lowest seen in eight years and makes the case for higher used car pricing, which supports Ally's profitability, Graseck said. 

Jobless claims are trending lower, with initial weekly claims now down nearly 75% since peaking in late March. Continuing claims are also down 14% since peaking in early May, and these trends imply improving consumer credit quality, the analyst said. 

Ally Financial's stock remains "attractive" at just 0.6 times price-to-book and a P/E multiple of six times, according to Morgan Stanley. 

ALLY Price Action

Shares of Ally Financial were trading higher by 10.61% to $23.46 at the time of publication. 

Related Links:

The Daily Biotech Pulse: Adamas Rallies On FDA Acceptance, Oxford Immunotech Reportedly Gets $400M Bid

'Whoa': May Jobs Report Much Stronger Than Expected, Unemployment Rate Falls To 13.3%

Benzinga file photo by Dustin Blitchok.