What do you do with a very well-run company that enjoys
exceptional margins and would still seem to have room to grow share, but
is also looking at a possible sea change in its core addressable market
that may leave it with much lower content shares and margins? That’s
the conundrum with Allison Transmission (ALSN)
today; management continues to execute well and generate fantastic
margins and cash flows for a commercial vehicle components company, but
the advent of electrification in commercial trucks threatens its entire
business structure.
I do believe that commercial
vehicle electrification is a “when, not if” situation, but that leaves
plenty of uncertainty over timing, not to mention content (some
commercial EVs will still have transmissions). Likewise, while Allison
is investing in EV technologies of its own, it’s unlikely to enjoy the
same sort of share and margins, but how big will the change be?
I
generally make it a policy to step aside if I don’t feel like I have a
great handle on valuation, and that applies here to some extent. I’m
really not worried about Allison’s future over the next five years or
so, but I’d need a price closer to $40 to coax me in.
Continue here:
Allison Transmission Remains Hard To Value In An 'EV Someday...' World
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