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Allison Transmission Gets a 79% Boost in TPG-Axon’s 4Q Portfolio

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TPG-Axon’s holdings in Allison Transmission

TPG-Axon Capital Management boosted its holdings in Allison Transmission Holdings Inc. (ALSN) in 4Q14. It increased the number of shares held in the company from 1,333,494 in 3Q14 to 2,391,072 in 4Q14, a huge 79% increase.

Allison Transmission stock forms 6.08% of the fund’s 4Q14 portfolio. The company is also part of the iShares Russell Midcap Growth ETF (IWP) with an exposure of 0.13%.

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US economic recovery offers a promising outlook

According to a February 14, 2015, article in The Economist, the growth in US economic activity is beginning to show in the form of increased public spending, inexpensive credit, and a healthy labor market. A presentation released by Allison Transmission on March 3, 2015, indicated that improved economic activity, including a recovery in the housing market and rising construction activity, lead to increased demand for heavy duty trucks, which offers opportunities for Allison Transmission.

US total vehicle sales march toward pre-crisis levels

As shown in the graph below, US total vehicle sales have historically ranged between 16 and 18 million units on an annual basis. Having plunged into sub-10-million levels during the years following the global financial crisis, this economic indicator has returned to the pre-crisis range.

Since companies involved in auto parts manufacturing such as Allison Transmission cater to the automotive market, the outlook is expected to be positive for these companies, given the resilience of US total vehicle sales.

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Strong 4Q14 financial performance

Allison Transmission reported net sales of $544 million for 4Q14. This is an increase of 10.9% over the prior year period. Adjusted net income rose by a massive 50.7% to $117 million during 4Q14. Adjusted free cash flow was $129 million, an 18% rise over the prior year period value.

Diluted EPS (earnings per share) grew 21.7% to $0.28. Allison offers a dividend yield of 1.7%, while Johnson Controls (JCI) offers 1.9%, BorgWarner (BWA) offers 0.8%, and Delphi Automotive (DLPH) offers 1.2%.

Opportunities in emerging markets

According to a company presentation dated March 3, 2015, the emphasis by the Chinese government on revamping equipment for school buses, on mining, and on other applications such as construction offers Allison Transmission significant growth opportunities. Allison targets specific vocations in China and is a major provider of automatic transmissions there.

About Allison Transmission

Allison Transmission is involved in the manufacturing and design of fully automatic transmissions for defense and commercial businesses. Close to 80% of the company’s 2014 revenues originated in North America. However, the company has a global presence, catering to customers in Africa, Asia, South America, and Europe.

In the next part of this series, we’ll take a look at TPG-Axon Capital Management’s increased position in Kar Auction Services, Inc. (KAR).

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