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JPMorgan Upgrades Allison Transmission to ‘Overweight’

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Price movement

Allison Transmission Holdings (ALSN) has a market cap of $5.8 billion. It fell 1.0% to close at $34.66 per share on December 9, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 2.2%, 15.5%, and 36.9%, respectively, on the same day.

ALSN is trading 6.2% above its 20-day moving average, 15.4% above its 50-day moving average, and 23.9% above its 200-day moving average.

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Related ETF and peers

The Guggenheim Mid-Cap Core ETF (CZA) invests 0.59% of its holdings in Allison Transmission. The YTD price movement of CZA was 16.4% on December 9.

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

  • Caterpillar (CAT): $56.5 billion
  • Cummins (CMI): $23.9 billion
  • Thor Industries (THO): $5.6 billion

ALSN’s rating

On December 9, 2016, Piper Jaffray downgraded Allison Transmission Holdings to “underweight” from “neutral.” It raised the stock’s price target to $30 from $28 per share.

JPMorgan upgraded Allison Transmission’s rating to “overweight” from “neutral” and set the stock’s price target at $38 per share.

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Performance of Allison Transmission in 3Q16

Allison Transmission reported 3Q16 net sales of $434.3 million, a fall of 11.9% compared to $493.0 million in 3Q15. The company’s gross profit margin fell 80 basis points, and its operating margin rose 120 basis points in 3Q16 compared to 3Q15.

Its net income fell to $44.6 million in 3Q16 compared to $46.5 million in 3Q15. It reported EPS (earnings per share) of $0.27 in both 3Q16 and 3Q15. It reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $150.5 million in 3Q16, a fall of 13.6% compared to 3Q15.

ALSN’s cash and cash equivalents fell 34.5%, and its inventories rose 10.2% in 3Q16 compared to 4Q15. It reported adjusted free cash flow of $115.5 million in 3Q16, a fall of 21.8% compared to 3Q15.

Projections

Allison Transmission has made the following projections for 2016:

  • net sales to fall 8.5%–9.5%
  • adjusted EBITDA margin of 34.0%–35.0%
  • adjusted free cash flow of $435.0 million–$455.0 million
  • capital expenditure of $70.0 million–$75.0 million
  • cash income tax of $10.0 million–$15.0 million

Next, we’ll look at Harman International Industries (HAR).

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