Stifel Shifts Allison Transmission To Buy, Says 2018 Setup Remains Favorable

Some consider Allison Transmission Holdings Inc ALSN at risk of losing clients in the transportation industry’s ostensible shift toward electric powertrains, but others on the Street think the truck supplier’s set to surge ahead.

The Rating

Stifel Nicolaus analyst Michael Baudendistel upgraded Allison Transmission from Hold to Buy and raised the price target from $44 to $50.

The Thesis

Baudendistel is a buyer on the recent pullback in the stock.

“We continue to believe ALSN is a solid holding, with electrification-related obsolescence fears largely overblown and with favorable cyclical positioning relative to many peers given its minimal exposure to over-the-road Class 8 trucks, the segment most at risk of peaking in 2018,” he said in a Thursday note. 

The analyst said he anticipates 2019 growth in the production of trucks most commonly equipped with Allison products, and  sees potential for Allison to continue supplying the slow-growing electric and hybrid market.

Allison's 2017 fiscal year was marked by consistent revenue beats, strong margins and aggressive stock buybacks, all of which Baudendistel said he expects to continue.

“The setup into 2018 remains favorable, with further production growth expected in core markets and free cash flow which should approach $600 million,” Baudendistel said, predicting the 10-percent yield would be used for additional share repurchases.

Price Action

At the time of publication, shares were down 1.42 percent at $39.66. 

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Photo courtesy of Allison Transmission.