Ally Financial Inc. (ALLY) stock intrinsic value fair value estimate & owner earnings analysis

Ally Financial is a U.S. bank holding company built around auto finance. It lends to car buyers, leases vehicles, finances dealers' inventory and sells dealer insurance through roughly 21,400 active dealer relationships. It funds this with an online-only bank: deposits were $154.0 billion at June 30, 2026 against $140.1 billion of net finance receivables. Ally sold its credit card business to CardWorks on April 1, 2025, so today's earnings come mainly from auto lending, insurance and the deposit franchise. How we measured earnings. For a lender, borrowing is the raw material of the business and interest is an ordinary operating cost, so we value earnings after interest and do not subtract Ally's debt from the result. Ally's preferred stock ($1.98 billion at June 30, 2026, down from $2.32 billion at year-end 2025) ranks ahead of common shareholders; its dividends of about $110 million a year are deducted before we reach the common-share figure. The cash-flow statement flatters Ally: 2025 operating cash flow was $3.73 billion against net income of $852 million, mostly because it adds back the $1.48 billion provision for credit losses and the depreciation on leased vehicles. Those are the real cost of replacing loans that go bad and cars that lose value, so we do not add them back. We start from net income available to common shareholders and add back only goodwill impairments and small intangible amortization, which are past acquisition costs, not ongoing costs. Stock compensation is already deducted in net income. In 2025 the $305 million goodwill charge on the card sale was offset by a $306 million release of loan-loss reserves from the same sale, so we let the two cancel rather than count a one-time charge as an add-back. As a cross-check, 2025 operating cash flow of $3.73 billion is within about 1.3% of net income plus the non-cash items listed in the filing ($3.78 billion). The result, per diluted share: 2016 $2.16, 2017 $2.06, 2018 $2.98, 2019 $4.37, 2020 $3.06, 2021 $8.28, 2022 $5.13, 2023 $3.35, 2024 $2.24, 2025 $2.38. We use the median of the ten years excluding 2021, which is $2.98. Ten years covers the 2020 pandemic shock, the 2021 boom and the 2022 to 2024 squeeze from higher credit losses and funding costs, so it is a full cycle. We leave out 2021 because credit-loss provisions were only $241 million that year, compared with $1.40 billion in 2022 and $2.17 billion in 2024; that condition has reversed and should not be treated as normal. More recent results have been stronger: net income to common shareholders was $658 million ($2.11 per share) in the first half of 2026, including $1.18 in the second quarter, and the four quarters from July 2025 through June 2026 total about $1.33 billion, or roughly $4.25 per share. That informs our upside case, but it is not a long enough record to lift the base level. Base case: $58.05 per share. Earnings start at $2.98 and grow 2% a year for ten years (to about $3.63), then stay flat. Owner earnings grew 6.1% in 2025 ($2.24 to $2.38); the base case assumes only 2% in year one, so no reversal of a slowdown is being assumed. The 2% is credited because the earnings that Ally retains have been put to work: net finance receivables grew from $134.0 billion at year-end 2025 to $140.1 billion at June 30, 2026 and deposits from $151.6 billion to $154.0 billion, all funded from Ally's own retained earnings and deposits, and common equity is about $13.2 billion (roughly $42.70 per share). We do not credit share gains, wider margins, new products or buybacks as extra growth. After year ten we assume no growth: the deposit franchise and dealer network have produced $2.06 to $8.28 per share of owner earnings in every one of the last ten years, which supports earnings persisting, but nothing named supports more. Worth $58.05 per share as a business, owes nothing that is subtracted (lender funding is part of the operation), so the difference is $58.05. Bear case: $33.33 per share. Owner earnings settle at $2.00, slightly below the lowest year of the past decade ($2.06 in 2017), with no growth ever. This is the story of credit losses and funding costs staying near their 2024 levels, when provisions reached $2.17 billion and owner earnings fell to $2.24. Worth $33.33, owes nothing subtracted, difference $33.33. This case does not model a crisis in which losses on a $140 billion loan book wipe out a large part of Ally's $15.5 billion of equity, because nothing in the filings points to one; if that happened, common shareholders would lose much more than this case shows. Ally is a leveraged lender, and the $1.98 billion of preferred stock and $17.1 billion of long-term debt sit ahead of common shareholders. Bull case: $84.30 per share. Owner earnings start at $4.00, below the roughly $4.25 of the last four quarters and below 2019's $4.37, and grow 3% a year for ten years (to about $5.38), then stay flat. This is what happens if credit-loss provisions stay at the lower levels of the past year and the loan and deposit growth already visible in 2026 continues. Worth $84.30, owes nothing subtracted, difference $84.30. What would make us wrong: a rise in auto loan losses or a fall in used-vehicle values would hit the cheaper cases first, and Ally's dividends and buybacks depend on the Federal Reserve's annual review of its capital plan. We looked hard at the one place the result could be overstated, the treatment of loan-loss provisions: if they were added back as the cash-flow statement does, owner earnings would look several times larger, which is why we chose the stricter treatment. Change since our last estimate. Our August 2026 estimate was $22.22 (bear), $44.15 (base) and $78.68 (bull), with a margin-of-safety price of $25. The direction is mixed: we now start from a higher earnings level ($2.98 against $2.60) but credit slower growth (2% against 4.5%) and value all cases at the same 6% required return instead of 8.5% to 11.5%, which is what lifts the values. We now treat past goodwill impairments as add-backs, and count only the net effect of the card sale. Margin-of-safety price: $33.00. Ally is a cyclical, leveraged lender, so the price carries a large cushion: it is about 43% below our base value and roughly equal to the bear case.