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On Wednesday, Citi analyst Kyle Menges revised the price target for Allison Transmission shares, traded on the New York Stock Exchange under the ticker (NYSE:ALSN), to $115 from the previous $120, while maintaining a Neutral stance on the stock. According to InvestingPro data, the stock has delivered an impressive 83.89% return over the past year, currently trading at $114.19. Based on InvestingPro’s Fair Value analysis, the stock appears slightly overvalued at current levels. Menges updated his financial model to account for Allison Transmission’s fourth-quarter results, which led to a reduced adjusted EBITDA forecast for 2025. The new estimate stands at $1,237 million, down from $1,285 million, due to anticipated declines in on-highway and parts & services volumes and margins.
Despite the adjustment, Menges’s estimate remains slightly above Allison Transmission’s own high-end guidance for 2025. He suggests that the company’s North American on-highway guidance may be conservative. The pricing guidance provided by Allison Transmission, indicating a 400-basis point increase in 2025, matched Menges’s expectations. However, the projected adjusted EBITDA margin expansion of 80 basis points in 2025 was considered somewhat disappointing. InvestingPro analysis reveals the company maintains a "GREAT" overall financial health score, with 11 additional ProTips available to subscribers covering various aspects of the company’s performance and valuation.
Allison Transmission’s management highlighted concerns over raw material costs and lower volume decrementals as factors that could negatively impact margins in 2025. Menges acknowledged the conservative nature of the company’s guidance but also recognized potential downside risks. These risks pertain to North American on-highway volumes, which could be affected by medium-duty order trends, and to margins, especially with the potential imposition of U.S. tariffs on aluminum and steel.
In conclusion, while Menges sees Allison Transmission’s guidance as leaning towards the cautious side, he notes the presence of downside risks that justify the maintenance of a Neutral rating and a lowered price target for the company’s stock.
In other recent news, Allison Transmission Holdings Inc. reported a strong finish to the year, with Q4 adjusted earnings per share of $2.01, exceeding analyst estimates of $1.89. Revenue also surpassed expectations, rising 2.7% year over year to $796 million, compared to the projected $777.81 million. However, the company’s 2025 guidance fell short of Wall Street’s expectations, forecasting full-year revenue between $3.2 billion and $3.3 billion, slightly under the consensus estimate of $3.22 billion.
These recent developments come as the Indianapolis-based manufacturer sees increased demand for certain products and robust North American vocational demand. Q4 net sales in the North America On-Highway segment, Allison’s largest market, increased 10% year over year to $419 million. The Defense segment also saw a rise, with an 8% increase to $68 million.
The company reported Q4 net income of $175 million, up from $170 million in the previous year. Despite these positive results, adjusted EBITDA declined slightly to $270 million from $277 million last year. In a display of financial resilience, Allison returned cash to shareholders in 2024 by increasing its quarterly dividend for the fifth consecutive year and repurchasing over $250 million of common stock.
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