Ally Earnings: Firm Posts Solid Results as Prospects for Net Interest Margins Improve

No-moat-rated Ally Financial reported decent earnings that were slightly above our expectations, though the firm is still facing downward pressure on its net interest income from funding costs that have risen faster than the yield on its assets. Adjusted earnings per share decreased 45% from last year but were flat sequentially at $0.45. These results translate to a return on equity of 4.5%, below the firm's normal level. As we incorporate these results, we do not plan to materially alter our $43 fair value estimate. Following the market's strong positive reaction, we see the shares as slightly undervalued.