Allison Transmission Gets Boost From Bank Of America: Here's What Made Investors Buy

On Wednesday, Bank of America Merrill Lynch issued a company note on Allison Transmission Holdings Inc (NYSE: ALSN) following share price underperformance in 2016. Analysts at Bank of America Merrill Lynch upgraded Allison Transmission from Neutral to Buy, while increasing their price target from $25 to $27.

Ross Gilardi and Michael Feniger, analysts at Bank of America Merrill Lynch, wrote, "We view ALSN as a strong industrial company with a robust market position, attractive margins, and strong free cash flow generation. We see limited downside to ALSN's North America oil & gas business. We believe truck risks are better understood by the market and see some support to the medium duty cycle over the next 12-18 months."

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Justification For The Upgrade

Analysts at Bank of America Merrill Lynch gave one key reason why they upgraded Allison Transmission: potentially increasing multiple.

Analysts at Bank of America Merrill Lynch believe that Allison's above average returns and lower cyclicality profile may lead to a higher earnings multiple and drive value for shareholders. Furthermore, analysts noted that profit margins have the potential to increase as well due to consumer demand and improving operational efficiency, particularly regarding the manufacturing of their propulsion systems.

At the time of this publication, Allison Transmission was trading up 2.92 percent on the day at $24.35.