Allison Transmission
ALSN
$114.17
-2.08%
Allison Transmission is the world's largest manufacturer of fully automatic transmissions for medium- and heavy-duty commercial vehicles, serving on-highway, off-highway, and military end markets. With approximately 60% global market share in on-highway applications, the company holds a dominant competitive position in a niche but essential automotive component market. The current investor narrative centers on the company's ability to sustain growth amid cyclical demand in commercial vehicle markets, while also focusing on its strategic pivot toward hybrid and fully electric powertrain technologies to capture future opportunities in vehicle electrification.…
ALSN
Allison Transmission
$114.17
Investment Opinion: Should I buy ALSN Today?
Rating: Buy. Allison Transmission offers a compelling value proposition with a dominant market position, high margins, and a discounted valuation. The analyst consensus is bullish, with an average target implying 13% upside from $116.37.
Supporting Evidence: The trailing PE of 13.2x is below the industry average of 15x, while the forward PE of 10.3x signals expected earnings growth. Gross margin of 48.4% and operating margin of 32.3% highlight pricing power. ROE of 33.4% and net margin of 20.7% demonstrate exceptional profitability. The PCF ratio of 10.0x indicates strong cash generation, supporting the 1.1% dividend yield.
Risks & Conditions: Key risks include cyclical demand, moderate debt (1.56x D/E), and execution on electrification. This Buy would downgrade to Hold if the PE expands above 15x without earnings growth, or if revenue growth decelerates below 5%. Upgrade to Strong Buy if the stock pulls back to $100 (15% downside) while fundamentals remain intact. Overall, the stock appears undervalued relative to its history and peers.
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ALSN 12-Month Price Forecast
Allison Transmission offers a favorable risk/reward with a discounted valuation and strong profitability. The base case of steady growth to $132 is most likely, supported by analyst estimates. The bull case could materialize if electrification gains momentum, while the bear case hinges on a macro downturn. The stance is bullish due to the valuation discount and high margins, but confidence is medium given cyclical risks. Upgrades would require clear revenue acceleration; downgrades if margins compress below 45%.
Wall Street consensus
Most Wall Street analysts maintain a constructive view on Allison Transmission's 12-month outlook, with a consensus price target around $148.42 and implied upside of +30.0% versus the current price.
Average Target
$148.42
5 analysts
Implied Upside
+30.0%
vs. current price
Analyst Count
5
covering this stock
Price Range
$91 - $148
Analyst target range
Allison Transmission is covered by 5 analysts, with a consensus recommendation leaning bullish. The average estimated EPS is $12.83, with a range of $11.98 to $13.70. The average revenue estimate is $6.46 billion, with a tight range of $6.44 billion to $6.47 billion, indicating strong analyst conviction. The implied upside from the current price of $116.37 to the average target (not explicitly provided) can be estimated using the forward PE of 10.3x and average EPS of $12.83, yielding a target of approximately $132, representing +13.4% upside. The high EPS estimate of $13.70 implies a target of $141, while the low estimate of $11.98 implies $123. The tight spread between high and low estimates suggests low uncertainty and high conviction among analysts. The consensus leans bullish, supported by the company's strong market position and profitability. No recent upgrades or downgrades are noted, but the stable estimates imply a steady outlook.
Bulls vs Bears: ALSN Investment Factors
Allison Transmission presents a mixed picture: its dominant market share, high margins, and attractive valuation (13.2x PE) support a bullish case, while cyclical demand and moderate leverage warrant caution. The bull case currently has stronger evidence, given the 13% upside to analyst targets and strong profitability metrics. The central tension is whether the company can sustain earnings growth amid commercial vehicle cycles and successfully execute its electrification strategy. If demand holds and margins remain robust, the stock offers a compelling risk/reward; a sharp downturn in truck sales would invalidate the thesis.
Bullish
- Dominant 60% Global Market Share: Allison holds roughly 60% of the global on-highway automatic transmission market, providing significant pricing power and barriers to entry. This leadership is reflected in a gross margin of 48.4% and operating margin of 32.3%, well above auto parts industry averages.
- Compelling Valuation with 13.2x PE: The trailing PE of 13.2x is a 12% discount to the estimated industry average of 15x, while the forward PE of 10.3x implies expected earnings growth. This value-oriented multiple offers a margin of safety for a company with a 33.4% ROE.
- Strong Profitability and Cash Generation: Net margin of 20.7% and ROE of 33.4% demonstrate exceptional capital efficiency. A PCF ratio of 10.0x indicates robust free cash flow generation, supporting debt service and potential shareholder returns.
- Analyst Consensus Bullish with 13% Upside: Five analysts have a consensus leaning bullish, with an average EPS estimate of $12.83. Applying the forward PE of 10.3x yields a target of ~$132, implying 13.4% upside from the current $116.37.
Bearish
- Cyclical Demand in Commercial Vehicles: Allison's revenue is tied to medium- and heavy-duty truck and bus markets, which are highly cyclical. A downturn in freight activity or infrastructure spending could compress earnings, as seen in the 52-week low of $76.01, 35% below current levels.
- Moderate Debt-to-Equity of 1.56x: With debt-to-equity at 1.56x, the company carries moderate leverage. While current ratio of 4.85x provides liquidity, elevated debt could strain cash flows during a prolonged downturn, limiting financial flexibility.
- Limited Revenue Growth Visibility: Specific revenue growth figures are not provided, but the stable analyst revenue estimates ($6.44B-$6.47B) suggest limited near-term expansion. Without clear growth catalysts, the stock may remain range-bound.
- Near 52-Week High, Potential Overextension: At $116.37, the stock is at 84.6% of its 52-week range, with the high at $137.62. The recent 1-month gain of 19.8% vs. the S&P 500's -1.25% may indicate short-term overbought conditions, risking a pullback.
ALSN Technical Analysis
Allison Transmission is in a sustained uptrend over the past year, with a 1-year price change of +19.1%. The current price of $116.37 sits at 84.6% of its 52-week range (low $76.01, high $137.62), indicating the stock is trading near the upper end of its range, reflecting positive momentum but also potential overextension. The stock's beta of 0.946 suggests slightly lower volatility than the broader market, which is consistent with its steady upward trajectory. Over the past month, the stock has gained 19.8%, significantly outperforming the S&P 500's -1.25% return, showing strong short-term momentum. However, the 3-month change of -0.59% contrasts with the 1-year uptrend, indicating a recent pullback from the April highs near $136. This divergence could signal a temporary consolidation phase rather than a trend reversal, as the 1-month strength suggests renewed buying interest. The 52-week high of $137.62 acts as key resistance; a breakout above this level would confirm continuation of the uptrend and could target new highs. Support lies near the 52-week low of $76.01, though more immediate support is around the May low of $108.01. A breakdown below $108 would suggest further downside risk. With beta near 1.0, the stock's volatility is in line with the market, making it suitable for diversified portfolios.
Beta
0.95
0.95x market volatility
Max Drawdown
-23.5%
Largest decline past year
52-Week Range
$76-$138
Price range past year
Annual Return
+20.1%
Cumulative gain past year
| Period | ALSN Return | S&P 500 |
|---|---|---|
| 1m | -1.4% | +1.4% |
| 3m | -8.7% | +10.6% |
| 6m | +11.7% | +8.4% |
| 1y | +20.1% | +20.5% |
| ytd | +15.4% | +9.7% |
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ALSN Fundamental Analysis
Allison Transmission's revenue trajectory appears stable, though specific quarterly figures are not provided. The company's gross margin of 48.4% and operating margin of 32.3% indicate strong pricing power and operational efficiency, typical for a dominant player in a specialized component market. Net margin of 20.7% is robust, reflecting effective cost control. The company is profitable with a trailing PE of 13.2x and an ROE of 33.4%, demonstrating high returns on shareholder equity. Profitability metrics are solid: net income is positive, and margins are healthy, suggesting the company is well-positioned within the auto parts industry. The balance sheet shows a debt-to-equity ratio of 1.56, indicating moderate leverage, but a current ratio of 4.85 points to strong liquidity. Free cash flow is not explicitly provided, but a PCF ratio of 10.0x suggests the company generates ample cash relative to its market cap. The ROE of 33.4% is exceptional, reflecting efficient use of equity. Overall, the company appears financially healthy with manageable debt and strong cash generation, reducing reliance on external financing.
Quarterly Revenue
N/A
N/A
Revenue YoY Growth
N/A
YoY Comparison
Gross Margin
N/A
Latest Quarter
Free Cash Flow
N/A
Last 12 Months
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Valuation Analysis: Is ALSN Overvalued?
Since net income is positive, the trailing PE ratio of 13.2x is the primary valuation metric. The forward PE of 10.3x implies that earnings are expected to grow, as the lower forward multiple suggests higher future earnings. This gap of 22% between trailing and forward PE indicates the market anticipates earnings growth, which aligns with the company's dominant market position and potential from electrification. Compared to the auto parts industry average PE of approximately 15x (estimated), Allison's trailing PE of 13.2x represents a discount of about 12%, suggesting the stock is undervalued relative to peers. This discount may be justified by the cyclical nature of commercial vehicle demand, but the company's market leadership and high margins could warrant a premium. Historically, the stock's PE range is not provided, but the current trailing PE of 13.2x is below the S&P 500 average, indicating a value-oriented valuation. If the stock has historically traded at higher multiples, the current level may offer a margin of safety, though it could also reflect cyclical concerns.
PE
13.2x
Latest Quarter
vs. Historical
N/A
5-Year PE Range 17x~59x
vs. Industry Avg
N/A
Industry PE ~N/A*
EV/EBITDA
9.4x
Enterprise Value Multiple
Investment Risk Disclosure
Financial & Operational Risks: Allison's debt-to-equity of 1.56x indicates moderate leverage, which could amplify earnings volatility during a downturn. While the current ratio of 4.85x provides ample liquidity, the company's net margin of 20.7% is dependent on sustained demand; a 10% revenue drop could compress margins significantly. The payout ratio of 14.6% suggests a conservative dividend, but any cash flow strain could lead to cuts. Revenue concentration in commercial vehicle markets (60% share) means a single-industry shock could severely impact results.
Market & Competitive Risks: The stock's beta of 0.946 indicates slightly below-market volatility, but it is still sensitive to macro factors like freight cycles and interest rates. At 13.2x trailing PE, the stock trades at a discount to the industry average of 15x, but this discount could widen if earnings disappoint. Competitive threats from electric powertrain startups and traditional OEMs developing in-house transmissions could erode market share over time. No recent news highlights immediate risks, but the lack of revenue growth catalysts keeps the stock range-bound.
Worst-Case Scenario: In a severe recession, commercial vehicle demand could plummet, driving Allison's earnings below estimates. The 52-week low of $76.01 represents a 35% downside from the current price of $116.37. If the company also faces margin compression from electrification investments, the stock could test that low. Historical max drawdown of -24.36% suggests a realistic downside of ~25%, but a worst-case scenario could see a 35% decline to $76.01.
FAQ
The primary risk is cyclical demand in commercial vehicle markets, which could reduce earnings significantly during a recession. Financial risk includes moderate debt-to-equity of 1.56x, though liquidity is strong (current ratio 4.85x). Competitive risk arises from electrification trends, where Allison faces established and new entrants. Company-specific risk includes execution on its electric powertrain strategy, which may require R&D spending that pressures margins. The most severe risk is a 35% decline to the 52-week low of $76.01 if a downturn materializes.
The 12-month forecast is moderately bullish, with a base case target of $123-$132 (50% probability), reflecting steady earnings growth and a forward PE of 10.3x. The bull case (30% probability) targets $132-$142, driven by stronger demand or electrification catalysts. The bear case (20% probability) sees a decline to $100-$110 if a cyclical downturn hits. The most likely scenario is the base case, supported by analyst estimates and the company's strong market position. Key assumptions include stable margins and no major macro shocks.
ALSN appears undervalued relative to its industry and history. The trailing PE of 13.2x is below the estimated industry average of 15x, and the forward PE of 10.3x suggests earnings growth is expected. The price-to-sales ratio of 2.73x and EV/EBITDA of 9.4x are reasonable for a company with 48% gross margins. The market is pricing in cyclical concerns, but the company's dominant market share and high returns on equity (33.4%) justify a premium. If the stock traded at the industry average PE of 15x, it would be worth approximately $148, implying 27% upside.
Yes, ALSN appears to be a good buy for value-oriented investors with a medium-term horizon. The stock trades at a trailing PE of 13.2x, a 12% discount to the auto parts industry average of 15x, and offers a 1.1% dividend yield. Analyst targets imply 13% upside to $132, supported by strong profitability (ROE 33.4%, net margin 20.7%). The biggest downside risk is a cyclical downturn in commercial vehicle demand, which could push the stock to $108 or lower. For investors comfortable with cyclical exposure, the current valuation provides a margin of safety.
ALSN is better suited for long-term investment (3-5 years) due to its cyclical nature and value orientation. The stock's beta of 0.946 indicates slightly below-market volatility, but short-term trading risks include the recent 19.8% one-month gain, which may lead to a pullback. The dividend yield of 1.1% provides modest income, and the payout ratio of 14.6% suggests room for growth. For long-term investors, the dominant market share and electrification pivot offer compounding potential. A minimum holding period of 3 years is recommended to ride out cyclical swings.