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Here's Why You Should Retain Allison Stock in Your Portfolio Now
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Allison Transmission Holdings, Inc. (ALSN - Free Report) is likely to benefit from rising global defense budgets, continued innovation in product development and international growth opportunities. However, high R&D and labor costs remain concerning.
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Rising Defense Budget, Continued Innovation Aid ALSN
Allison is well-positioned to benefit from rising global defense budgets. For 2024, Allison is targeting an additional $100 million in revenues from this market. It intends to achieve this by leveraging the current defense up-cycle, characterized by increased global defense investments amid geopolitical uncertainties. Domestically, it will capitalize on opportunities within the U.S. modernization programs, as well as by partnering with the U.S. Department of Defense (DoD). The DoD partnerships are already yielding additional sales. The 4040MX addition boosts Allison's portfolio and creates new prospects for international growth in the defense market. Deal with BAE Systems Hagglunds to supply the new Allison 4040 MX propulsion system for the ongoing CV90 Infantry Fighting Vehicle programs will drive sales.
Allison’s focus on advanced technology and continued innovation in product development augur well. FracTran, TerraTran and 3414 Regional Haul Series, fully automatic transmission, along with the development of products catering to electrification and fuel-cell markets for commercial vehicles, are opening new growth opportunities for the firm. ALSN’s eGen Power portfolio, comprising 100S, 100D, 130S, 85S and 130D e-axles, demonstrates its ability to adapt to the changing dynamics of the auto industry. In particular, the eGen Flex and the eGen Force portfolios are driving Allison’s prospects. Also, Allison Ventures has committed to invest $10 million in EnerTech Capital, a firm focused on emerging mobility technologies. This partnership grants Allison access to EnerTech's network of high-tech companies in electrification, connectivity, autonomy and digitization.
The company's international growth opportunities abound. In the first quarter of 2024, Allison entered the Brazilian ag sprayer market in an effort to target growth in new markets and applications around the world. Expansion into South America's largest agricultural economy opens new growth avenues outside North America, particularly in the Off-Highway business. Allison has deepened its partnership with Yutong, a leading Chinese bus OEM, to expand its presence in Rwanda. It has also partnered with LGMG to boost its global mining presence. The expansion of its partnership with SANY, with a focus on consolidating its presence in the mining dump market in key regions like Africa, Asia and South America, also bodes well. These partnerships provide Allison with growth opportunities in global export markets.
Allison is seeing robust demand from the North America On-Highway end market. This segment drove strong revenue growth in 2023, and the company expects to build on this strength this year as well. For the full year, Allison has increased its guidance for total sales, earnings and cash flow. It expects total sales in the range of $3.09-$3.17 billion, up from the previous guidance of $3.05-$3.15 billion. Net income is expected in the band of $650-$700 million, up from $635-$685 million guided earlier. Adjusted FCF is estimated between $590 million and $640 million, up from the prior view of $575-$625 million.
Increasing R&D and Labor Cost Ail Allison
Electrified propulsion initiatives are expected to flare up the spending levels of the firm, thereby clipping cash flows. In 2023, the firm’s research and development (R&D) costs increased roughly 5% year over year, primarily driven by higher product initiatives spending. The company is expected to see rising R&D expenses this year as well to fund product development across all end markets. Per the newly ratified four-year collective bargaining agreement with the UAW union in the latter half of last year, Allison expects a significant increase in labor costs. The agreement will expire in November 2027. High R&D expenses & labor costs will put pressure on near-term profits.
The consensus estimate for DORM’s 2024 sales and earnings suggests year-over-year growth of 3.71% and 35.46%, respectively. EPS estimates for 2024 and 2025 have improved 51 cents and 37 cents, respectively, in the past 60 days.
The Zacks Consensus Estimate for BLBD’s 2024 sales and earnings suggests year-over-year growth of 17.58% and 215.89%, respectively. EPS estimates for 2024 and 2025 have improved 65 cents and 80 cents, respectively, in the past 60 days.
The Zacks Consensus Estimate for PLOW’s 2024 earnings suggests year-over-year growth of 60.4%. EPS estimates for 2024 have improved 15 cents in the past 60 days.
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Here's Why You Should Retain Allison Stock in Your Portfolio Now
Allison Transmission Holdings, Inc. (ALSN - Free Report) is likely to benefit from rising global defense budgets, continued innovation in product development and international growth opportunities. However, high R&D and labor costs remain concerning.
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Rising Defense Budget, Continued Innovation Aid ALSN
Allison is well-positioned to benefit from rising global defense budgets. For 2024, Allison is targeting an additional $100 million in revenues from this market. It intends to achieve this by leveraging the current defense up-cycle, characterized by increased global defense investments amid geopolitical uncertainties. Domestically, it will capitalize on opportunities within the U.S. modernization programs, as well as by partnering with the U.S. Department of Defense (DoD). The DoD partnerships are already yielding additional sales. The 4040MX addition boosts Allison's portfolio and creates new prospects for international growth in the defense market. Deal with BAE Systems Hagglunds to supply the new Allison 4040 MX propulsion system for the ongoing CV90 Infantry Fighting Vehicle programs will drive sales.
Allison’s focus on advanced technology and continued innovation in product development augur well. FracTran, TerraTran and 3414 Regional Haul Series, fully automatic transmission, along with the development of products catering to electrification and fuel-cell markets for commercial vehicles, are opening new growth opportunities for the firm. ALSN’s eGen Power portfolio, comprising 100S, 100D, 130S, 85S and 130D e-axles, demonstrates its ability to adapt to the changing dynamics of the auto industry. In particular, the eGen Flex and the eGen Force portfolios are driving Allison’s prospects. Also, Allison Ventures has committed to invest $10 million in EnerTech Capital, a firm focused on emerging mobility technologies. This partnership grants Allison access to EnerTech's network of high-tech companies in electrification, connectivity, autonomy and digitization.
The company's international growth opportunities abound. In the first quarter of 2024, Allison entered the Brazilian ag sprayer market in an effort to target growth in new markets and applications around the world. Expansion into South America's largest agricultural economy opens new growth avenues outside North America, particularly in the Off-Highway business. Allison has deepened its partnership with Yutong, a leading Chinese bus OEM, to expand its presence in Rwanda. It has also partnered with LGMG to boost its global mining presence. The expansion of its partnership with SANY, with a focus on consolidating its presence in the mining dump market in key regions like Africa, Asia and South America, also bodes well. These partnerships provide Allison with growth opportunities in global export markets.
Allison is seeing robust demand from the North America On-Highway end market. This segment drove strong revenue growth in 2023, and the company expects to build on this strength this year as well. For the full year, Allison has increased its guidance for total sales, earnings and cash flow. It expects total sales in the range of $3.09-$3.17 billion, up from the previous guidance of $3.05-$3.15 billion. Net income is expected in the band of $650-$700 million, up from $635-$685 million guided earlier. Adjusted FCF is estimated between $590 million and $640 million, up from the prior view of $575-$625 million.
Increasing R&D and Labor Cost Ail Allison
Electrified propulsion initiatives are expected to flare up the spending levels of the firm, thereby clipping cash flows. In 2023, the firm’s research and development (R&D) costs increased roughly 5% year over year, primarily driven by higher product initiatives spending. The company is expected to see rising R&D expenses this year as well to fund product development across all end markets. Per the newly ratified four-year collective bargaining agreement with the UAW union in the latter half of last year, Allison expects a significant increase in labor costs. The agreement will expire in November 2027. High R&D expenses & labor costs will put pressure on near-term profits.
Stocks to Consider
Some better-ranked stocks in the auto space are Dorman Products, Inc. (DORM - Free Report) , Blue Bird Corporation (BLBD - Free Report) and Douglas Dynamics, Inc. (PLOW - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for DORM’s 2024 sales and earnings suggests year-over-year growth of 3.71% and 35.46%, respectively. EPS estimates for 2024 and 2025 have improved 51 cents and 37 cents, respectively, in the past 60 days.
The Zacks Consensus Estimate for BLBD’s 2024 sales and earnings suggests year-over-year growth of 17.58% and 215.89%, respectively. EPS estimates for 2024 and 2025 have improved 65 cents and 80 cents, respectively, in the past 60 days.
The Zacks Consensus Estimate for PLOW’s 2024 earnings suggests year-over-year growth of 60.4%. EPS estimates for 2024 have improved 15 cents in the past 60 days.