UPDATE: Deutsche Bank Upgrades Allison Transmission

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Deutsche Bank upgraded Allison Transmission Holdings Inc. ALSN Monday from Hold to Buy and raised its price target from $33 to $41.

Analyst Vishal Shah expected “global machinery volumes to increase by 4 percent in 2015, vs. down 1 percent in 2014. The primary driver is a strong trucking/engine sector. As such, we are raising our global engines/trucking 2015 outlook from low single digit growth to up 8 percent.”

Shah noted that “ALSN is our preferred way to play the acceleration in the North America truck cycle” and that the “2015 North America medium duty and heavy duty buying cycle could be larger than expected and given that 40 percent of the company’s revenue is leveraged to this end market, we believe it is well positioned to outperform its machinery peers.”

“With the improving US economy and tax base, municipal spending on equipment has begun to pick up and we expect this trend to translate into stronger medium duty sales. Furthermore, we expect continued growth in the construction market to underpin transmission sales,” according to the analyst note.

Shah claimed that the recently announced “buyback program of $500M provides downside protection and continued cash generation and deleveraging could result in greater capital return over the coming cycle.”

The firm adjusted its 2015E revs/EPS estimate from $2.1B/$2.64 to $2.3B/$2.94 (non-GAAP) vs consensus of $2.2B/$1.51 (GAAP).

ALSN shares were valued on the firm’s “2015 EPS estimate and mid-cycle multiple of 14x...which represents ~25 percent upside from current levels.”

Allison Transmission recently traded at $33.44, up 3.02 percent.

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Posted In: Analyst ColorUpgradesPrice TargetAnalyst RatingsDeutsche BankVishal Shah
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