Wells Fargo upgrades Ally Financial to Equalweight, citing improved interest rate risk and positive auto credit trends.

Wells Fargo upgraded Ally Financial to Equalweight from Underweight, citing diminishing interest rate tail risk and positive auto credit trends. This bodes well for increased stock buybacks in 2026. Ally Financial's consumer finance sector has been viewed constructively, but caution was exercised due to concerns about interest rate risks.

Wells Fargo has upgraded Ally Financial (NYSE:ALLY) to Equalweight from Underweight, citing diminishing interest rate tail risk and positive auto credit trends. This move is seen as a positive catalyst for potential stock buybacks in 2026.

Analyst Donald Fandetti at Wells Fargo noted that while the consumer finance sector has been viewed constructively, Ally Financial faced caution due to interest rate risks. However, with the Federal Reserve poised to cut rates, Ally's risk/reward profile has improved. Fandetti believes that even modest Fed cuts could be a tailwind for net interest margin (NIM), as auto loans are fixed-rate and funded with deposits. Ally Financial's 2025 NIM guidance is 3.4%-3.5%, providing room for slight upside. Every +10 basis points of NIM adds ~10% to Ally's EPS.

Additionally, Ally Financial's auto credit situation has been improving. Its auto loan delinquencies are tracking slightly better than internal expectations, according to Wells Fargo analysis. This could lead to higher guidance for net charge-offs and NIM in the near term. The higher rates impacting accumulated other comprehensive income (AOCI) have kept Ally Financial's share repurchases on hold. With potentially lower rates and progress made on capital, Fandetti sees stock buybacks "back on the table" likely in early 2026.

Wells Fargo's Equalweight rating on Ally contrasts with the SA Quant rating of Strong Buy, the average SA Analyst rating, and the average Wall Street rating, all at Buy. Despite the upgrade, Ally stock dropped 1.7% in Tuesday midday trading.

References:
[1] https://seekingalpha.com/news/4491261-ally-financial-upgraded-to-equalweight-at-wells-fargo