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On Wednesday, Baird adjusted its outlook for Allison Transmission (NYSE:ALSN), increasing the stock price target to $103 from the previous $90 while maintaining a Neutral rating on the stock. The firm recognizes the company's significant performance surge following the second quarter of 2024 results, which surpassed expectations and led to an increase in the company's financial guidance.
The robust sales in the North American On-Highway segment and notable strength in the Class 8 vocational market underpin this optimistic view.
The upward revision in the price target reflects Baird's anticipation of Allison Transmission continuing to outperform market expectations in the third quarter of 2024. The firm has accordingly raised its own estimates, suggesting that management might once again revise the 2024 guidance upwards.
Baird's updated sales model is now 2% higher than the FactSet consensus and only marginally lower than the record highs seen in the second quarter, hinting at the potential for similar quarter-over-quarter sales figures.
Baird's analysts expect Allison Transmission to beat earnings per share (EPS) estimates by 3% based on the current trajectory. The firm has also increased its 2024 sales forecast slightly above the upper end of the company's guidance, positioning its adjusted EBITDA estimate at the high end as well. This reflects a strong belief in the company's near-term fundamentals.
The analyst's comments underscore the company's successful quarter and the expectation of continued strong performance. According to Baird, although the near-term outlook for Allison Transmission is favorable and the firm is generally more positive, high market expectations are already factored into the upcoming financial results.
In other recent news, Allison Transmission has made significant strides in its strategic partnerships and financial performance. The company announced a partnership with LiuGong, a global construction equipment manufacturer, to address the needs of the Indonesian mining industry. This alliance was highlighted by the unveiling of LiuGong's 70-ton DW105A Wide Body Dump Truck, equipped with Allison's 4800 Wide Body Dump Series transmission.
In financial developments, the company reported a record-breaking revenue of $816 million in the second quarter of 2024, with a net income of $187 million and a gross profit of $394 million. This strong performance led Baird to raise its price target for Allison Transmission from $87 to $90, while maintaining a neutral rating. The company also declared a quarterly cash dividend of $0.25 per share for the third quarter of 2024.
Allison Transmission's commitment to diverse propulsion solutions was further evidenced by the successful trial of a Hyundai (OTC:HYMTF) Xcient hydrogen fuel cell truck, equipped with an Allison 4000 Series™ fully automatic transmission, which completed 30,000 kilometers of deliveries for GLS Germany. Despite these positive developments, Baird has expressed caution regarding Allison Transmission's long-term prospects, considering the cyclical nature of the industry.
InvestingPro Insights
Allison Transmission's strong performance, as highlighted in Baird's analysis, is further supported by real-time data from InvestingPro. The company's impressive financial metrics align with the optimistic outlook presented in the article.
InvestingPro data shows that Allison Transmission has a P/E ratio of 12.68, indicating that the stock may be undervalued relative to its earnings. This is particularly noteworthy given the company's strong revenue growth of 5.56% over the last twelve months, which reached $3,116 million. The company's profitability is further emphasized by its high gross profit margin of 48.17% and operating income margin of 30.97% for the same period.
Two key InvestingPro Tips reinforce the positive sentiment:
1. Allison Transmission has raised its dividend for 4 consecutive years, demonstrating a commitment to returning value to shareholders.
2. The company is trading at a low P/E ratio relative to near-term earnings growth, which supports Baird's expectation of continued outperformance.
These insights complement Baird's analysis and provide additional context for investors considering Allison Transmission's stock. InvestingPro offers 13 additional tips for ALSN, providing a comprehensive view of the company's financial health and market position.
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