Zacks Industry Outlook Highlights Capital One Financial, Ally Financial and OneMain

For Immediate ReleaseChicago, IL – January 29, 2025 – Today, Zacks Equity Research discusses Capital One Financial Corp. COF, Ally Financial Inc. ALLY and OneMain Holdings, Inc. OMF.Industry: Consumer LoanLink: https://www.zacks.com/commentary/2404379/3-stocks-to-watch-from-the-challenging-consumer-loan-industryThe Zacks Consumer Loans industry continues to witness weakening asset quality. Also, though the Federal Reserve has started lowering rates, prospects of significant interest rate cuts are less on persistent inflation and a resilient labor market. So, relatively high interest rates are here to stay, and demand for consumer loans will likely be modest.Yet, easing lending standards, stabilizing consumer sentiments and digitizing operations will support consumer loan providers. Hence, industry players like Capital One Financial Corp., Ally Financial Inc. and OneMain Holdings, Inc. are worth keeping an eye on.About the IndustryThe Zacks Consumer Loans industry comprises companies that provide mortgages, refinancing, home equity lines of credit, credit card loans, automobile loans, education/student loans and personal loans, among others. These help the industry players generate net interest income (NII), which forms the most important part of total revenues.Prospects of the companies in this industry are highly sensitive to the nation's overall economic condition and consumer sentiments. In addition to offering the above-mentioned products and services, many consumer loan providers are involved in businesses like commercial lending, insurance, loan servicing and asset recovery. These support the companies in generating fee revenues. Furthermore, this helps the firms diversify revenue sources and be less dependent on the vagaries of the economy.3 Major Themes Influencing the Consumer Loan IndustryAsset Quality: For most of 2020, consumer loan providers built additional provisions to tide over unexpected defaults and payment delays due to the economic downturn resulting from the COVID-19 mayhem. This considerably hurt their financials. However, with solid economic growth and support from government stimulus packages, industry players began to release these reserves back into the income statement.Lately, high inflation and cost of living are taking a toll on consumers' ability to repay loans. Thus, consumer loan providers are building additional reserves to counter any fallout from unexpected defaults and payment delays. This is leading to a deterioration in industry players' asset quality, and several credit quality metrics have crept up above pre-pandemic levels.Interest Rate Cuts & Loan Demand: Though the Federal Reserve lowered the interest rates by 100 basis points in 2024, it took a hawkish stance during its December FOMC meeting. The central bank hinted at fewer rate cuts in 2025 as it believes that the economy is still holding strong amid 'sticky' inflation and a solid job market.Further, in January, the University of Michigan's Consumer Sentiment Index declined for the first time in six months. Consumers remain concerned that slower rate cuts will make them deal with price pressures and higher borrowing rates for a longer time. Hence, with consumers already facing the adverse impact of prolonged high inflation, demand for loans will likely be modest in the near term. Thus, industry players are expected to record marginal growth in net interest margin (NIM) and NII.Lending Standards: With the nation's big credit reporting agencies removing all tax liens from consumer credit reports since 2018, several consumers' credit scores have improved. This has raised the number of consumers for the industry participants. Further, easing credit lending standards are helping consumer loan providers meet loan demand.Zacks Industry Rank Reflects a Gloomy PictureThe Zacks Consumer Loans industry is a 16-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #152, which places it in the bottom 39% of more than 250 Zacks industries.The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group's earnings growth potential. In the past year, the industry's earnings estimates for the current year have been revised 11.7% lower.Before we present a few stocks that you may want to keep an eye on despite a challenging industry backdrop, take a look at the industry's recent stock market performance and valuation picture.Industry vs. Broader MarketThe Zacks Consumer Loans industry has outperformed the Zacks S&P 500 composite and its sector over the past two years.The stocks in this industry have collectively soared 67.2% over this period, while the Zacks S&P 500 composite and the Zacks Finance sector have jumped 55% and 37.7%, respectively.Industry ValuationOne might get a good sense of the industry's relative valuation by looking at its price-to-tangible book ratio (P/TBV), commonly used for valuing consumer loan stocks because of significant variations in their earnings results from one quarter to the next.The industry currently has a trailing 12-month P/TBV of 1.46X, above the median level of 1.15X over the past five years. This compares with the highest level of 1.58X and the lowest level of 0.48X over this period. The industry is trading at a considerable discount when compared with the market at large, as the trailing 12-month P/TBV ratio for the S&P 500 is 15.00X and the median level is 13.97X.As finance stocks typically have a lower P/TBV, comparing consumer loan providers with the S&P 500 may not make sense to many investors. However, comparing the group's P/ TBV ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector's trailing 12-month P/TBV of 5.53X for the same period is way above the Zacks Consumer Loan industry's ratio.3 Consumer Loan Stocks to Keep on the RadarCapital One: Headquartered in McLean, VA, the company is primarily focused on consumer and commercial lending and deposit origination. Its deal to acquire Discover Financial will reshape the landscape of the credit card industry, leading to the formation of a behemoth in the industry.Additionally, strength in credit card and online banking operations, decent loan growth, robust balance sheet position and strategic expansion initiatives will support Capital One's financials.With the Federal Reserve likely to keep interest rates relatively high in the near term to control inflation, this Zacks Rank #3 (Hold) company's NII and NIM are expected to witness modest improvements as rising funding costs will weigh on both. Revenue prospects look encouraging on the back of the company's solid credit card and online banking businesses, as well as decent loan demand. Strong growth opportunities in card loans and purchase volumes are expected despite an intensely competitive environment. You can see the complete list of today's Zacks #1 Rank stocks here.The Zacks Consensus Estimate for earnings for 2025 and 2026 suggests growth of 9.7% and 19.6%, respectively. Also, COF's shares have soared 35.9% over the past six months.Ally Financial: Detroit, MI-based Ally Financial is a diversified financial services company providing a broad array of financial products and services, primarily to automotive dealers and their customers. Ally Bank is an indirect, wholly-owned banking subsidiary of Ally Financial.In January, Ally Financial announced some key strategic initiatives to focus on its core auto lending business. The company announced the sale of its credit card operations and the cessation of new mortgage loan originations. In March 2024, the company sold its point-of-sale financing business – Ally Lending. These efforts are likely to help the company prioritize its core businesses and drive solid returns.Growth in one of the key sources of revenues – net financing revenues – remains a major positive for Ally Financial. Given strong origination volumes and retail loan growth, the company is expected to continue witnessing a rise in the metric in the quarters ahead.In the past six months, shares of this Zacks Rank #3 company have lost 11.1%. The Zacks Consensus Estimate for earnings indicates growth of 63.8% for 2025 and 46.1% for 2026.OneMain Holdings: Evansville, IN-based OneMain Holdings is a financial services company engaged in consumer finance and insurance businesses. The company operates in 1,300 locations across 44 states and has a digital presence.Further, strategic acquisitions continue to bolster its revenue growth. The acquisition of Foursight Capital LLC in 2024 helped OneMain Holdings to expand its presence into the auto lending business, while the buyout of Trim in 2021 supported the company's initiative to enhance its digital offerings.OneMain Holdings' relationship-driven business model and decent balance sheet position are likely to support financials. Also, this Zacks Rank #3 company's efforts to diversify the product base will drive growth over time.While the Zacks Consensus Estimate for earnings for 2025 indicates a 10.1% decline, the same implies growth of 39.8% for 2026. OMF's shares have risen 10.2% over the past six months.Why Haven't You Looked at Zacks' Top Stocks?Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.Today you can access their live picks without cost or obligation.See Stocks Free >>Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.Media ContactZacks Investment Research800-767-3771 ext. 9339support@zacks.comhttps://www.zacks.comPast performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance  for information about the performance numbers displayed in this press release.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.3% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Capital One Financial Corporation (COF): Free Stock Analysis Report Ally Financial Inc. (ALLY): Free Stock Analysis Report OneMain Holdings, Inc. (OMF): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks