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. The upgrade comes as the Federal Reserve is poised to cut rates, which could benefit Ally's net interest margin (NIM) and potentially lead to increased stock buybacks in 2026.

Analyst Donald Fandetti, who authored the note to Wells Fargo clients, noted that the company's interest rate risk has diminished, and auto credit trends have improved. He highlighted that even modest Fed cuts would be a tailwind for 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 a slight upside, with every +10 basis points of NIM adding ~10% to Ally's earnings per share (EPS).

Fandetti also pointed out that Ally Financial's auto loan delinquencies are tracking slightly better than internal expectations, which 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. However, with potentially lower rates and progress made on capital, Fandetti sees stock buybacks "back on the table" likely in early 2026, constituting a positive catalyst.

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 rating upgrade, Ally's stock dropped 1.7% in Tuesday midday trading.

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