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Ally Stock Lower; to Buy Credit Card Firm Fair Square for $750M

Ally Financial shares fell after the bank said it would enter the credit card business by purchasing Fair Square Financial for $750 million cash.
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Ally Financial  (ALLY) - Get Ally Financial Inc Report shares fell Thursday after the bank said it would enter the credit card business by purchasing provider Fair Square Financial for $750 million cash.

Fair Square Financial, founded in 2016, has 658,000 card holders and $763 million in loan balances, Ally said.

“Similar to Ally, FSF is digitally born,” Ally said. “The digital DNA has positioned FSF to generate significant customer engagement through web and mobile while also having a 100% digital application process.”

The transaction is expected to close by the end of the first quarter. 

Ally also said that third-quarter net income totaled $712 million, or $1.89 a share, up from $476 million, or $1.26 share, in the year-earlier quarter. Adjusted profit hit $2.16 a share, beating the FactSet analyst consensus of $1.97 a share.

Revenue rose 18% to $1.99 billion from $1.68 billion a year earlier but trailed analysts’ forecast of $2.03 billion.

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Ally benefited from lower financing costs and higher revenue from its consumer auto segment, it said.

The Detroit company’s stock recently traded at $52.89, down 5.2%. But it has still climbed 13% in the past six months.

Star investor Bill Nygren, manager of Oakmark Select Fund, told CNBC last week that he liked Ally.

“There are a bunch of stocks that are really cheap, such as financials and energy, and then a bunch of stocks that are really expensive,” he said. 

“I think the cheap stocks are cheaper enough that a value portfolio today looks pretty typically valued.”

Wall Street Journal data pegs Ally's trailing-12-month price-to-earnings multiple at just about 7.