The North American commercial truck market is still in
pretty rough shape. While August vehicle orders showed sequential growth
for both Class 8 trucks (up 37%) and Class 5-7 trucks (up 10%), both
were down on a year-over-year basis (down 29% and down 5%,
respectively). For Class 8 trucks, that's a year and a half of
consecutive Y-O-Y declines in the monthly numbers, while Class 5-7
trucks have seen negative annual comps in three of the last four months.
That's a tough backdrop for Allison Transmission (NYSE:ALSN),
the leading manufacturer of automatic transmissions for heavy-duty
vehicles, but Wall Street has minded too much. While the shares are down
a bit over the past year, they are up almost 20% from my last article, just a little below Cummins (NYSE:CMI) and Twin Disc (NASDAQ:TWIN),
though the latter has been much more volatile. Investors seem to be
encouraged by Allison's ability to retain strong share and good margins
through this downturn, as well as the prospects for increased share on
product roll-outs by customers like Navistar (NYSE:NAV) and PACCAR (NASDAQ:PCAR).
I
still like Allison. It's not tremendously undervalued relative to the
operating and macro risks, but it is priced for double-digit returns.
More to the point, management seems to be following a sensible plan and
one that I think can add share in important under-penetrated markets
like metro Class 8 and international over time.
Read more here:
Allison Transmission Grinding Through A Rough Patch
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