Allison Transmission
ALSN
$126.69
+0.83%
Allison Transmission Holdings is the world's largest manufacturer of fully automatic transmissions for medium- and heavy-duty commercial vehicles, serving Class 4-8 trucks, buses, off-highway equipment, and military vehicles, with a portfolio that also includes commercial hybrid propulsion systems and emerging fully electric powertrains. The company is best characterized as a dominant niche monopolist rather than a broad-line auto parts supplier: its on-highway business commands roughly 60% of the global market for fully automatic commercial transmissions, a position underpinned by deep OEM integration, a proprietary dealer/service network, and a reputation for fuel and operator efficiency that justifies a price premium over manual and automated manual alternatives. The current investor narrative centers on an unusually strong Q3 2026 print — revenue of $1.534 billion (up 121% year-over-year, though the comparison base and any acquisition contribution warrant scrutiny), EPS of $2.30, and a 33% gross margin — which has driven a sharp re-rating in the shares over the past month. Debate now hinges on whether this represents durable share gains and pricing power in defense and service-parts channels or a cyclical peak amplified by one-off items, set against a leveraged balance sheet following a large Q1 acquisition and the longer-term question of how quickly electrification erodes the core transmission franchise.…
ALSN
Allison Transmission
$126.69
Investment Opinion: Should I buy ALSN Today?
Rating: Hold with a constructive bias. The core thesis is that Allison's 60% share of the global fully automatic commercial transmission market and 48.37% TTM gross margin justify owning the franchise, but the Q3 2026 print — $1.534 billion of revenue (up 121.4% YoY) on a gross margin that collapsed to 32.92% from 47.47% a year earlier — is too irregular to underwrite at the current $130.09, leaving the 9.7% upside to the $142.70 average target insufficient compensation for the risk. The 6 Buy / 3 Hold / 1 Sell split (recommendation mean 2.09) and the $116-$191 target spread confirm that even the sell-side cannot agree on whether the Q3 step-up is a new run-rate or a cyclical/acquisition spike.
The supporting evidence is genuinely mixed but tilts toward the stock being fairly valued rather than cheap. At 13.19x trailing and 11.32x forward EPS of $14.62, ALSN trades at a discount to the auto-parts sector's mid-to-high-teens multiple, and its 48.37% TTM gross margin and 32.33% operating margin are far above the high-single-digit to low-teens margins typical of parts suppliers. Free cash flow is the strongest pillar: $825 million TTM against only $65 million of quarterly capex implies roughly 81% conversion, and Q3 alone generated $278 million of FCF funding $57 million of buybacks and $23 million of dividends. But the balance sheet has deteriorated — debt-to-equity of 1.56x and total debt to capitalization of 65.9% after $2.56 billion of Q1 2026 acquisitions, with Q3 interest expense of $51 million plus $66 million of net other expenses absorbing about 28% of pre-tax operating profit — and the 32.92% Q3 gross margin shows the revenue step-up is arriving at a much lower incremental margin than the legacy business.
The biggest risks that could invalidate the thesis are (1) revenue normalizing back toward the pre-Q3 base while gross margin stays in the low 30s, which would put the $14.62 forward EPS consensus at risk; (2) leverage constraining deleveraging pace and keeping interest coverage at 5.96x, limiting multiple expansion; and (3) electrification eroding the core automatic transmission franchise, where Allison is a follower rather than a leader. This Hold would upgrade to Buy if Q4 confirms the elevated revenue run-rate with gross margin recovering above 40% and debt-to-equity trending below 1.3x, or if the shares pull back toward the $106-$110 October support zone (roughly -15% to -18%) while fundamentals hold. It would downgrade to Sell if gross margin stays below 35% for a second consecutive quarter, if forward EPS guidance is cut below $13, or if the stock breaks below $106 on volume. Valuation verdict: fairly valued — the 11.32x forward PE is a discount to peers but appropriate for a leveraged, late-cycle industrial with structural electrification risk, and the 2.73x PS ratio near the low end of its 4.5x-11.7x historical range reflects acquisition-diluted revenue rather than a mispricing.
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ALSN 12-Month Price Forecast
The forward view is balanced: at 11.32x forward EPS of $14.62 the stock already discounts much of the leverage and electrification risk, and $825 million of TTM free cash flow provides a real deleveraging engine, but the 32.92% Q3 gross margin versus 47.47% a year ago means the revenue inflection is not yet translating into proportional earnings power. The base case (50% probability, $135-$150) assumes revenue holds near the $6.95 billion consensus with margins stabilizing in the mid-to-high 30s, while the bear case (25%, $106-$116) prices a normalization back toward the pre-Q3 base. I would upgrade to bullish if Q4 confirms the elevated run-rate with gross margin above 40% and debt-to-equity below 1.3x, and downgrade to bearish if gross margin stays below 35% for a second quarter or forward EPS guidance is cut below $13. The wide $116-$191 analyst range and the stock's position at 88.6% of its 52-week range after a 58.7% one-year gain argue for patience rather than chasing at $130.09.
Wall Street consensus
Coverage is moderate, with 10 analysts publishing ratings: 6 Buy, 3 Hold, and 1 Sell, yielding a consensus recommendation of "buy" and a recommendation mean of 2.09 (where lower is more bullish). The average target price of $142.70 implies roughly 9.7% upside from the current $130.09, a relatively modest expected return for a stock that has already rallied 58.7% in a year — suggesting much of the good news is priced in and that the consensus is constructive but no longer aggressively so. The consensus forward EPS estimate of $14.62 (range $14.29-$14.85) and revenue estimate of $6.95 billion (range $6.83-$7.03 billion) show tight dispersion, indicating high confidence in near-term numbers even as the price targets diverge.\n\nThe target range is exceptionally wide — from a low of $116.00 (about 10.8% below the current price) to a high of $191.00 (about 46.8% above) — a $75 spread that signals genuine disagreement about the durability of the Q3 inflection. The high target likely assumes the elevated revenue run-rate persists, defense and aftermarket mix drives margin recovery toward the 45%+ gross margin seen in 2025, and deleveraging unlocks multiple expansion toward the mid-teens. The low target effectively prices in a normalization back toward the pre-Q3 revenue base, continued gross-margin compression from the 47% level to the low-30s, and the drag of $51 million quarterly interest expense. Institutional actions lean mildly positive: Citigroup upgraded to Buy from Neutral on October 12, 2026, and reiterated Buy on November 4, while Morgan Stanley, JP Morgan, and Wells Fargo have held Equal Weight/Neutral stances — a pattern of cautious validation rather than broad-based enthusiasm, consistent with a stock whose fundamentals have outrun its sell-side coverage.
Bulls vs Bears: ALSN Investment Factors
The bear case currently has slightly stronger near-term evidence: gross margin fell to 32.92% from 47.47% a year ago, leverage rose to 1.56x debt-to-equity after $2.56 billion of acquisitions, and the 121% revenue growth rests on an anomalously low $693 million base with an irregular quarterly sequence. The bull case rests on a genuine 60% share moat, 48.37% TTM gross margin, $825 million of TTM free cash flow, and a valuation of just 11.32x forward earnings that already discounts much of the risk. The single most important tension is whether the Q3 revenue level is a durable new run-rate with recovering mix or a one-off spike amplified by acquisitions — if margins recover toward the mid-40s on the elevated revenue base, the stock is materially undervalued; if revenue normalizes and margins stay in the low 30s, the forward EPS of $14.62 is at risk. Analyst sentiment (6 Buy, 3 Hold, 1 Sell, average target $142.70) is constructive but cautious, consistent with fundamentals having outrun coverage.
Bullish
- Dominant 60% share niche monopoly: Allison commands roughly 60% of the global market for fully automatic commercial transmissions, a position protected by deep OEM integration, a proprietary dealer/service network, and fuel/operator efficiency that justifies a price premium over manual and automated manual alternatives. That moat supports a 48.37% TTM gross margin and 32.33% operating margin, far above the high-single-digit to low-teens margins typical of auto-parts suppliers.
- Q3 revenue inflected 121% YoY: Q3 2026 revenue of $1.534 billion grew 121.4% from $693 million in Q3 2025, and the consensus forward revenue estimate of $6.95 billion (tight range of $6.83-$7.03 billion) implies the market expects the elevated run-rate to hold. Defense ($73 million) and Service Parts/Support Equipment ($160 million) are visible, structurally high-margin growth vectors.
- Cheap at 11.3x forward earnings: At $130.09 the stock trades at 13.19x trailing and just 11.32x forward EPS of $14.62, a discount to the auto-parts sector's mid-to-high-teens multiple despite a 33.37% ROE. EV/EBITDA of 9.41x and PS of 2.73x (near the low end of its historical 4.5x-11.7x range) suggest the market prices ALSN as a leveraged cyclical rather than a structural compounder.
- Strong free cash flow and liquidity: TTM free cash flow of $825 million against only $65 million of quarterly capex implies roughly 81% FCF conversion of operating cash flow, and the current ratio of 4.85x with $343 million of quarterly operating cash flow provides ample liquidity. Q3 alone generated $278 million of FCF, funding $57 million of buybacks and $23 million of dividends.
Bearish
- Gross margin collapsed to 32.9%: Q3 2026 gross margin of 32.92% fell sharply from 46.16% in Q2 and 47.47% in Q3 2025, a compression pattern pointing to a mix shift toward lower-margin acquired or pass-through revenue. If this mix persists, the earnings power implied by the 11.32x forward PE is overstated.
- Leverage jumped after $2.56B acquisitions: Debt-to-equity stands at 1.56x and total debt to capitalization at 65.9% after $2.56 billion of Q1 2026 acquisitions funded partly with $1.28 billion of net financing inflows; cash fell from $1.495 billion at year-end 2025 to $311 million by March. Q3 interest expense of $51 million plus $66 million of net other expenses absorbed about 28% of pre-tax operating profit, and interest coverage of 5.96x leaves less cushion than the pre-acquisition profile.
- Q3 may be a cyclical/acquisition spike: The quarterly revenue sequence of $1.406 billion (Q1), $860 million (Q2), then $1.534 billion (Q3) is highly irregular, with Q2 anomalously low relative to both adjacent quarters, suggesting acquisition contribution or revenue-recognition timing rather than pure organic acceleration. The 121% YoY growth is measured against an unusually low $693 million base.
- Momentum stretched near 52-week high: At $130.09 the stock sits at roughly 88.6% of its $78.77-$137.62 52-week range, just 5.5% below the high, after a 58.7% one-year and 16.7% one-month gain versus SPY's -2.35% month. That velocity leaves it vulnerable to sharp mean-reversion, and its 21.82% maximum drawdown shows it can retrace quickly.
ALSN Technical Analysis
ALSN is in a powerful, sustained uptrend: the stock is up 58.69% over the trailing year and 31.48% year-to-date, and at $130.09 it sits at roughly 88.6% of its 52-week range of $78.77 to $137.62 — just 5.5% below the high. That positioning signals strong momentum and institutional accumulation rather than a value entry point, though proximity to the upper band also raises the risk of overextension and profit-taking. Notably, the stock has compounded far faster than the market, with relative strength of +47.4 percentage points versus SPY over one year and +20.1 points YTD, confirming genuine leadership rather than beta-driven drift.\n\nShort-term momentum has re-accelerated decisively after a mid-year stall. The stock is up 16.70% in the past month versus a 2.35% decline for SPY (a +19.05 point relative spread), and up 5.83% over three months against SPY's -2.32%, while the six-month gain of 11.20% is smaller than the one-month gain — evidence that the trend was consolidating between July and October before breaking out again. The most recent session added 3.61% on volume of roughly 789,000 shares, a strong confirmation candle following the November 4 earnings release. This pattern of a higher-level base followed by a fresh breakout is technically constructive, though the velocity of the move (a 16.7% monthly gain) leaves the stock vulnerable to sharp mean-reversion if follow-through volume fades.\n\nKey levels are well defined: immediate resistance sits at the 52-week high of $137.62, roughly 5.8% above the current price, and a decisive break above that level would signal a continuation leg and likely trigger momentum-fund buying. Support is anchored by the 52-week low of $78.77, but more relevant near-term support lies in the $106-$110 zone where the stock based repeatedly in October; a break below that would mark a failed breakout and shift the trend structure. With a beta of 1.064, ALSN is only about 6% more volatile than the market, but its 21.82% maximum drawdown over the period shows it is not immune to sharp corrections — position sizing should account for the fact that a stock up 58.7% in a year can retrace quickly.
Beta
—
—
Max Drawdown
-21.8%
Largest decline past year
52-Week Range
—
Price range past year
Annual Return
+53.9%
Cumulative gain past year
| Period | ALSN Return | S&P 500 |
|---|---|---|
| 1m | +14.4% | -2.3% |
| 3m | +0.7% | -2.8% |
| 6m | +8.3% | +2.1% |
| 1y | +53.9% | +12.3% |
| ytd | +28.0% | +10.6% |
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ALSN Fundamental Analysis
The revenue trajectory is volatile but currently inflecting sharply upward. Q3 2026 revenue of $1.534 billion grew 121.4% year-over-year against $693 million in Q3 2025, but the quarterly sequence — $1.406 billion in Q1, $860 million in Q2, then $1.534 billion in Q3 — is highly irregular, suggesting acquisition contribution and/or revenue-recognition timing effects rather than pure organic acceleration; the Q2 figure in particular looks anomalously low relative to both adjacent quarters. Within the disclosed segments, Defense at $73 million and Service Parts/Support Equipment/Other at $160 million are the visible growth vectors, with the aftermarket parts business being structurally high-margin and the defense channel benefiting from military vehicle modernization. The investment case rests on whether the Q3 step-up is a new run-rate or a spike; the consensus revenue estimate of roughly $6.95 billion for the forward period implies the market expects the elevated level to hold.\n\nProfitability is robust but margin quality is uneven across quarters. Q3 2026 net income was $191 million on a 12.45% net margin, with gross margin of 32.92% — down sharply from 46.16% in Q2 and 47.47% in Q3 2025, a compression pattern that points to a mix shift toward lower-margin revenue (likely acquired or pass-through business) rather than pricing deterioration. Operating income of $304 million (19.82% operating margin) and EBITDA of $367 million (23.92% margin) remain healthy, and the company-wide trailing figures are stronger still, with a 48.37% gross margin and 32.33% operating margin on a TTM basis. Interest expense of $51 million and $66 million of net other expenses absorbed a meaningful 28% of pre-tax operating profit in Q3, a reminder that leverage is a real drag on earnings quality.\n\nThe balance sheet is the key watch item. Debt-to-equity stands at 1.56x and total debt to capitalization at 65.9%, elevated by the $2.56 billion of acquisitions in Q1 2026 that were partly funded with $1.28 billion of net financing inflows; cash fell from $1.495 billion at year-end 2025 to $311 million by March before rebuilding to $497 million at Q3. Liquidity remains ample — current ratio of 4.85x and a $343 million quarterly operating cash flow — and free cash flow is strong at $278 million in Q3 and $825 million TTM, against capex of only $65 million, giving an FCF conversion rate of about 81% of operating cash flow. ROE of 33.37% and ROA of 9.13% are excellent, and the company returned cash via $57 million of buybacks and $23 million of dividends in Q3, but the 1.56x leverage and 5.96x interest coverage leave less cushion than the pre-acquisition profile.
Quarterly Revenue
$1.5B
2026-09
Revenue YoY Growth
+121.4%
YoY Comparison
Gross Margin
32.9%
Latest Quarter
Free Cash Flow
$825000000.0B
Last 12 Months
Revenue & Net Income Trends (2 Years)
Revenue Breakdown
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Valuation Analysis: Is ALSN Overvalued?
Because Allison is solidly profitable — Q3 net income of $191 million and positive TTM earnings — the PE ratio is the appropriate primary metric. The stock trades at 13.19x trailing earnings and just 11.32x forward earnings, an unusually low absolute multiple for a business with 33% ROE and a dominant market position; the modest gap between trailing and forward multiples implies the market expects only modest EPS growth, and indeed the consensus forward EPS of $14.62 versus the current run-rate suggests earnings are already near a cyclical high. The PEG ratio of -1.13 is not meaningful given the sign of the growth input, and the 2.73x PS ratio and 9.41x EV/EBITDA provide cleaner cross-checks that both point to a mid-single-digit-to-low-double-digit multiple profile.\n\nRelative to the Auto-Parts industry, ALSN screens as a clear value: a 13.19x trailing PE and 11.32x forward PE sit at a discount to the sector's typical mid-to-high-teens multiple, while the 48.37% gross margin and 32.33% operating margin are far above what is typical for parts suppliers, whose margins usually run in the high single digits to low teens. The 4.40x price-to-book looks rich in isolation but is a function of the 4.2x equity multiplier from leverage rather than operational overvaluation. On EV/EBITDA of 9.41x and EV/Sales of 2.65x, the stock is priced roughly in line with a high-quality industrial, which understates the durability of a 60% share position in a mission-critical component — the discount appears to reflect electrification risk and balance-sheet leverage rather than any deficiency in the current franchise.\n\nHistorically, ALSN's PE has ranged from about 5.8x (Q3 2022) to 21.7x (Q1 2026), with the stock spending most of 2023-2024 in the 7x-13x band; at 13.19x it sits in the upper-middle of that range but well below the Q1 2026 peak of 21.7x. The PS ratio of 2.73x, however, is near the low end of its historical 4.5x-11.7x range, a divergence explained by the revenue step-up from acquisitions diluting the sales multiple while earnings have lagged. The read-through is that the market is pricing ALSN as a leveraged, cyclical, late-cycle industrial rather than a structural compounder — leaving room for multiple expansion if the Q3 revenue level proves durable and deleveraging progresses.
PE
13.2x
Latest Quarter
vs. Historical
High-End
5-Year PE Range 6x~13x
vs. Industry Avg
13.4x
Industry PE ~13.4x*
EV/EBITDA
9.4x
Enterprise Value Multiple
Investment Risk Disclosure
Financial and operational risks center on the balance sheet and margin quality. Debt-to-equity of 1.56x and total debt to capitalization of 65.9% followed $2.56 billion of Q1 2026 acquisitions, and cash fell from $1.495 billion at year-end 2025 to $311 million by March before rebuilding to only $497 million at Q3. Q3 interest expense of $51 million plus $66 million of net other expenses consumed roughly 28% of pre-tax operating profit, and interest coverage of 5.96x is thin for a cyclical industrial. Meanwhile gross margin collapsed to 32.92% in Q3 from 47.47% a year earlier, and the irregular revenue sequence ($1.406 billion, $860 million, $1.534 billion) raises the risk that the Q3 step-up is acquisition-driven or timing-related rather than organic, which would undermine the $14.62 forward EPS consensus. Market and competitive risks include valuation compression and structural disruption. At 13.19x trailing and 11.32x forward earnings the stock is not expensive versus the auto-parts sector, but the PS ratio of 2.73x sits near the low end of its historical 4.5x-11.7x range precisely because revenue has been diluted by lower-margin acquisitions, and the PE has ranged from 5.8x to 21.7x historically, showing multiples can move violently. Electrification of commercial fleets threatens the core automatic transmission franchise, and the company is a follower rather than a leader in fully electric powertrains. With a beta of 1.064 the stock is only about 6% more volatile than the market, but its 58.7% one-year gain and 16.7% one-month surge versus SPY's -2.35% leave it exposed to sector rotation and profit-taking, and the wide $75 analyst target spread ($116 to $191) signals genuine disagreement about durability. The worst-case scenario is a normalization of revenue back toward the pre-Q3 base combined with persistent low-30s gross margins, which would cut forward EPS well below the $14.62 consensus and trigger multiple compression toward the low end of the historical range. In that chain of events the shares could retrace to the analyst low target of $116.00 (about -10.8%) or, in a more severe de-rating, toward the October support zone of $106-$110 (roughly -15% to -18%) and ultimately the 52-week low of $78.77, about -39% from the current $130.09. The 21.82% maximum drawdown already observed is a realistic guide to a single adverse episode, so position sizing should assume a 20-40% drawdown is possible if the Q3 inflection proves cyclical.
FAQ
The most severe risk is margin quality: Q3 gross margin of 32.92% versus 47.47% a year earlier suggests the revenue step-up is mix-dilutive, and if it stays in the low 30s the $14.62 forward EPS consensus is at risk. Second is balance-sheet leverage — debt-to-equity of 1.56x and total debt to capitalization of 65.9% after $2.56 billion of Q1 2026 acquisitions, with $51 million of quarterly interest expense plus $66 million of net other expenses absorbing about 28% of pre-tax operating profit and interest coverage at only 5.96x. Third is revenue durability: the $1.406 billion, $860 million, $1.534 billion quarterly sequence is irregular enough that Q3 could be acquisition or timing driven, and the 121.4% growth is measured off an unusually low $693 million base. Fourth is structural and market risk — electrification threatens the core transmission franchise where Allison is a follower, and a stock up 58.7% in a year with a 21.82% observed maximum drawdown is vulnerable to sharp mean-reversion.
The 12-month forecast is split three ways. The base case carries 50% probability with a $135-$150 range, assuming revenue holds near the $6.95 billion consensus, gross margin stabilizes in the mid-to-high 30s, and forward EPS tracks near $14.62, letting the stock grind toward the $142.70 average target at 10-11x forward earnings. The bull case at 25% probability targets $160-$191, requiring Q4 to confirm the elevated run-rate with gross margin back above 40%, debt-to-equity below 1.3x, and multiple re-rating toward the mid-teens. The bear case at 25% probability targets $106-$116, pricing a normalization back toward the pre-Q3 revenue base with low-30s margins and estimate cuts, with the $78.77 52-week low as tail risk. The base case is most likely because the tight $6.83-$7.03 billion revenue dispersion shows high confidence in near-term numbers even as the $116-$191 target spread reveals disagreement on durability.
ALSN screens as modestly undervalued on earnings-based measures but fairly valued once leverage and cyclicality are considered. At 13.19x trailing and 11.32x forward EPS of $14.62, it trades at a discount to the auto-parts sector's mid-to-high-teens multiple, despite a 48.37% TTM gross margin and 32.33% operating margin that dwarf typical supplier economics. The 2.73x PS ratio sits near the low end of its historical 4.5x-11.7x range, though that is largely because acquisition revenue diluted the sales multiple while earnings lagged. The 4.40x price-to-book looks rich but reflects a 4.2x equity multiplier from leverage rather than operational overvaluation. The market is effectively pricing ALSN as a leveraged late-cycle industrial with electrification risk, leaving room for multiple expansion toward the mid-teens if the Q3 revenue level proves durable and debt-to-equity falls below 1.3x.
From a risk/reward standpoint ALSN is a reasonable but not compelling buy at $130.09: the 9.7% upside to the $142.70 average analyst target is modest against a 10.8% downside to the $116 low target and roughly 15-18% to the $106-$110 support zone. The valuation is genuinely supportive at 11.32x forward EPS of $14.62 and 9.41x EV/EBITDA, and $825 million of TTM free cash flow at about 81% conversion funds both $57 million of quarterly buybacks and $23 million of dividends. But the 32.92% Q3 gross margin versus 47.47% a year earlier means the 121.4% revenue growth is arriving at far lower incremental profitability, and debt-to-equity of 1.56x after $2.56 billion of acquisitions limits the margin for error. It is a good buy primarily for value-oriented investors with a 12-18 month horizon who can tolerate a 20-40% drawdown, and best accumulated on pullbacks toward $110-$116 rather than after a 16.7% one-month surge versus SPY's -2.35%.
ALSN fits a medium-to-long-term holding period of at least 12-18 months rather than short-term trading. The franchise — roughly 60% global share in fully automatic commercial transmissions, 48.37% TTM gross margin, 33.37% ROE — is a durable compounding asset, but the current setup requires time for the Q3 revenue level to be validated and for deleveraging to work through a 1.56x debt-to-equity balance sheet. A beta of 1.064 suggests only modest market correlation, yet the 21.82% maximum drawdown and 58.7% one-year gain mean short-term entry timing is treacherous. The 1.11% dividend yield with a low 14.6% payout ratio is incidental rather than an income thesis. Earnings visibility is decent given the tight consensus range, but the structural electrification question argues for monitoring the position annually rather than trading it quarterly.