Allison Transmission Better-Placed For This Downturn

Allison Transmission (ALSN) shares have done okay since my last, lukewarm, write-up, with the stock up about 7% - more or less in line with Cummins (CMI) and Dana (DAN), and considerably better than American Axle (AXL) and Tenneco (TEN), and a little worse than the overall market. Over the last few months, the impending decline in the North American on-highway business has become more and more obvious, though the company has done pretty well managing its expenses ahead of the decline, and I believe EBITDA margins will stay comfortably in the high 30%'s, a level that most commercial vehicle suppliers will never see in their best year.

As has been the case for a while, the biggest challenge in valuing Allison is factoring in the eventual impact of electrification (and the size/share of Allison's future EV tech offerings), but neither long-term discounted cash flow nor near-term EV/revenue suggest significant undervaluation today. In fact, like Cummins (another high-quality commercial vehicle supplier with some EV vulnerability), the market seems to already be pricing in a swift rebound after a tougher 2020.

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Allison Transmission Better-Placed For This Downturn