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On Monday, Citi analyst Kyle Menges updated the financial model for Allison Transmission (NYSE:ALSN), resulting in a raised price target from $95.00 to $105.00, while keeping a Neutral stock rating. The adjustment follows the company’s first-quarter results, with a revised 2025 estimated adjusted EBITDA increased to $1,188 million, up from $1,183 million. The company currently trades at an attractive PEG ratio of 0.68 and maintains a strong financial health score of "GREAT" according to InvestingPro analysis, which also indicates the stock is slightly undervalued at current levels.
The revised model reflects a conservative forecast for class 8 straight and medium-duty (MD) volumes, balanced by an improved margin outlook based on Allison Transmission’s recent performance. With a robust gross profit margin of 48.13% and a healthy current ratio of 3.05, the company demonstrates strong operational efficiency. The updated pricing for the year also contributed to the adjusted estimates. Menges noted that despite tariff pressures, Allison Transmission’s predominantly US and USMCA-compliant manufacturing footprint positions the company advantageously.
However, the analyst pointed out that sustained high steel and aluminum prices could potentially compress margins in the near term. These pressures are expected to be approximately 75% passed through with a six-month delay, according to the firm’s understanding.
Looking further ahead, Citi anticipates a subdued forecast for Allison Transmission’s adjusted EBITDA beyond 2025, citing a weaker outlook for North American On-Highway volumes in 2026 and 2027. Despite the slightly higher estimates and a modest increase in the applied multiple, the firm’s stance remains Neutral on the stock.
In other recent news, Allison Transmission reported its Q1 2025 earnings, revealing an earnings per share (EPS) of $2.23, which exceeded analyst expectations of $2.10. However, the company faced a revenue shortfall, reporting $766 million against the anticipated $792.25 million. Despite the revenue miss, Allison Transmission’s strong cash flow of $181 million and a 17% year-over-year increase in EPS bolstered investor confidence. The company also announced a reshuffling of its global leadership team, with Avery Sheets and Alex Schey assuming key roles in sales and marketing, respectively. Additionally, Allison Transmission’s 3040MX transmission was selected for India’s Future Infantry Combat Vehicle program, potentially generating significant revenue over the next two decades. In terms of analyst activity, Allison Transmission has not reported any recent upgrades or downgrades. The company’s strategic initiatives and leadership changes are seen as efforts to drive future growth and address current market challenges.
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