Allison Transmission Driving Unfamiliar Roads With Dim Headlights

Allison Transmission (ALSN) has been a fascinating stock to follow over the last year or so, perhaps not so much for the stock price action or the nature of the product, but in how the sell-side is trying to process and project the threats to the company’s strong, high-margin business in automatic transmissions for commercial vehicles. A small cadre of analysts is dutifully predicting future doom for Allison as electric vehicles become more viable for commercial applications, and in the meantime, they just waive off quarters where Allison beats their EBITDA estimates by 20% or more.

To be sure, the electrification of commercial vehicles is a very serious threat to Allison’s business as it stands today, and given that management hasn’t offered much detail on what they have cooking in R&D, it’s hard to have much confidence that they will succeed in innovating their way into the future of electric vehicles (and with attractive margins).

Fortunately for me, I don’t have to deal with an institutional sales force and pretend I have all the answers, so I’ll flatly admit that valuing Allison today is quite difficult and involves a lot more guesswork than normal. While I’d be interested in the shares when they to drop into the high-to-mid $30s, I wouldn’t chase them in the $40s given the risks that Class 8 demand could fade combined with the long-term EV uncertainties.

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Allison Transmission Driving Unfamiliar Roads With Dim Headlights