Decremental Margins And Weak Muni Budgets Challenge Allison Transmission

It’s early in the downturn, but Allison Transmission (ALSN) is so far living up to Street and investor expectations. Decremental margins are going to be an issue during the downturn, but operating leverage will improve when business turns and many companies would love to have Allison’s trough FCF production at their cyclical peaks.

I do have some concerns about municipal budgets and the oil/gas market, but I’ll get to those in a moment. For now, Allison continues to look like an okay prospect. There are much cheaper names in the vehicle supplier space now, including many with less risk to eventual electrification, but Allison is a proven name with exceptional margins and relatively less balance sheet risk. For investors who’ve waited for a chance to buy in at reasonable prices, this is still an opportunity.

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Decremental Margins And Weak Muni Budgets Challenge Allison Transmission