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Deutsche Bank Rated Allison Transmission Holdings as a ‘Hold’

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Price movement

Allison Transmission Holdings (ALSN) has a market cap of $4.7 billion. It rose by 0.14% to close at $27.76 per share on September 7, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -1.1%, -1.6%, and 9.1%, respectively, on the same day.

ALSN is trading 0.51% below its 20-day moving average, 1.8% below its 50-day moving average, and 5.2% above its 200-day moving average.

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Related ETF and peers

The Guggenheim Mid-Cap Core ETF (CZA) invests 0.66% of its holdings in Allison Transmission. The ETF tracks the Zacks Mid-Cap Core Index, a proprietary selected portfolio of 100 midcap stocks that seeks to outperform pure market-cap indexes. The YTD price movement of CZA was 11.5% on September 7.

The market caps of Allison Transmission’s competitors are as follows:

  • Caterpillar (CAT) — $48.9 billion
  • Cummins (CMI) — $20.2 billion
  • Thor Industries (THO) — $4.3 billion

ALSN’s rating

Deutsche Bank has initiated the coverage of Allison Transmission Holdings with a “hold” rating and set the stock price target at $30.00 per share.

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Performance in 2Q16

Allison Transmission reported 2Q16 net sales of $474.9 million—a fall of 7.1% from the net sales of $511.0 million in 2Q15. The company’s gross profit margin rose by 3.2%, and its operating income fell by 7.6% between 2Q15 and 2Q16.

Its net income and EPS (earnings per share) rose to $60.8 million and $0.36, respectively, in 2Q16, compared with $54.4 million and $0.30, respectively, in 2Q15. It reported adjusted EBITDA[1. earnings before interest, tax, depreciation, and amortization] of $173.3 million in 2Q16—a fall of 6.6% from fiscal 2Q15.

Allison Transmission’s cash and cash equivalents and inventories rose by 44.8% and 6.4%, respectively, between 4Q15 and 2Q16. Its current ratio and debt-to-equity ratio rose to 2.2x and 2.8x, respectively, in 2Q16. This compares to 2.0x and 2.7x, respectively, in 4Q15. It reported adjusted free cash flow of $156.7 million in 2Q16, a rise of 13.3% over fiscal 2Q15.

Projections

The company made the following projections for fiscal 2016:

  • net sales to decrease by 9.5%–10.5%
  • adjusted EBITDA margin of 33.3%–34.0%
  • adjusted free cash flow of $415 million–$435 million
  • capital expenditures of $65 million–$75 million
  • cash income tax of $10 million–$15 million

In the next part of this series, we’ll discuss Oshkosh Corporation (OSK).

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