Despite interest being at record lows, banks are finding ways to bring in record profits — and financial stocks are some of the best stocks this year because of this. Usually, banks are loved by larger investors for their safer status and benefits and steady money streams, but this year many of these gems have given growth stock like returns.
For example, both of these companies just gave their second-quarter earnings reports and their numbers suggest there is a lot of growth left.
1. Ally Financial
Analysts believed Ally will generate $1.46 in eps for their second quarter, but the firm crushed that number by giving $2.33 — a 59% win and its highest on record quarterly number. It was fueled by a record 3.5 million vehicle originations and 81% y/y growth in home originations, which is the firm’s fast-growing move into the mortgage sector.
Ally kept its spot as America’s number 1 all-digital bank, with its 49th quarter of growing its customer base, getting 19% compounded growth since the year of 2010.
The company also managed to expand its book value by 15% y/y to $38.80, which means its stock is selling at only 1.2 times tangible book value as of its close on Monday. A price-to-book ratio near to 1 is normally thought to be cheap for a bank expanding at Ally’s rate.
The 25% boost to the fiscal ’21 share buyback could be the largest sweetener for stock buyers. Now marked at $2 billion, that is more than 10% of the overall shares at this price. Also, the company has unveiled a 32% increase in its dividend, getting to $0.25 a share for the next quarter.
2. Western Alliance Bancorporation
Western Alliance is a bank specializing in lending to small-to-mid businesses — which makes up 68% of its overall loan portfolio — and the company has a smaller but quickly growing consumer book. On this consumer side, it has placed a big wager on mortgages with its purchase of AmeriHome, done in April. It is the third-biggest mortgage buyer in the United States, and is expected to give more growth for the company.
Analysts were predicting $1.96 in Q2 eps, but the company brought in a 16% surprise at $2.29. The beat was fueled by the bank’s consumer sector, where growth far outdid commercial loans — leveraging the on-fire housing market.
The company also expanded its book value by 18% y/y to $32.86. That puts it at 2.9 times tangible book value compared to Monday’s numbers. Even though it is on the high mark, as the benefits from the recent acquisition keep flowing, it might lead to a good uptick in book value in the next quarters.
Analysts believe Western Alliance will give $8.08 in full-year eps in 2021, representing a 60% growth compared to the 2020 numbers. If the company continues this pace, especially with opportunities given by AmeriHome, it means there could be a lot more earnings beats in the future.
Author: Scott Dowdy