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Why Is Allison Transmission (ALSN) Up 2.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Allison Transmission (ALSN - Free Report) . Shares have added about 2.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Allison Transmission due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Allison's Q1 Earnings Beat, Down Y/Y

Allison posted first-quarter earnings of $1.07 a share, topping the Zacks Consensus Estimate of 90 cents. Higher-than-expected revenues from On-Highway segments and the Defense unit led to the outperformance. However, the bottom line declined 10.8% on a year-over-year basis. Quarterly revenues of $588 contracted 7.7% from the comparable year-ago period but managed to surpass the consensus mark of $571 million.

Segmental Performance

Allison segregates its revenues in terms of end markets served, which are as follows:

For the reported quarter, net sales in the North America On-Highway end market dipped 9% year over year to $319 million on dwindling demand for products amid coronavirus woes. Nonetheless, the metric beat the Zacks Consensus Estimate of $294 million.

For the January-March period, net sales in the North America Off-Highway end market plummeted 75% from the prior-year quarter to $2 million amid weakness in hydraulic fracturing applications.

For the first quarter, net sales in the Defense end market rose 13% year over year to $45 million on higher tracked vehicle demand. Further, the figure also surpassed the consensus estimate of $42 million.

The Outside North America On-Highway end market’s net sales increased 17% year on year to $84 million for the March-end quarter driven by robust demand in Asia. The metric also topped the consensus mark of $65 million.

Net sales in the Outside North America Off-Highway end market slumped 41% year on year to $16 million for the first quarter due to dismal demand in the energy sector.

Net sales in the Service Parts, Support Equipment & Other end market slipped 12% year on year to $122 million for the reported quarter, owing to shrinking demand for North America service parts and support equipment.

Financial Position & Updated ’21 View

Allison Transmission  had cash and cash equivalents of $295 million on Mar 31, 2021 compared with $310 million as of 2020-end. As of Mar 31, long-term debt was $2,506 million, essentially unchanged from the 2020-end level. Adjusted free cash flow for the reported quarter was $107 million, down from the prior-year quarter’s $127 million.

Encouragingly, the  company raised its full-year guidance. Allison currently projects net sales in the band of $2,325-$2,475 million, up from the prior guided range of $2,265-$2,415 million. Net income and adjusted EBITDA are now envisioned in the band of $395-$465 million and $795-$885 million, up from $375-$445 million and $770-$860 million projected earlier, respectively. Adjusted free cash flow is expected within $415-$475 million, implying a year-over-year increase of 6% at the midpoint of the guided range. Capex projection remains unchanged between $170 million and $180 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Allison Transmission has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Allison Transmission has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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