Ally Earnings: Lower Net Interest Margins Pressure Results While Credit Costs Are Expected to Rise

No-moat Ally Financial reported decent second-quarter results that were in line with our expectations as lower net interest margins and higher credit costs continue to place downward pressure on results. Net revenue increased 0.7% from last year but was down 0.4% from last quarter to $2.1 billion. Meanwhile, earnings per share fell 29% from last year to $0.99, which translates to a return on tangible equity of 11.8%. The decline in profitability was primarily due to higher provisioning expenses as Ally transitions from a period of unusually low credit costs last year. As we incorporate these results, we do not expect to materially alter our $39 fair value estimate. We see the shares as undervalued at current prices on a full-cycle basis.