Corporate management teams are well-paid for their troubles, but that doesn’t mean I don’t occasionally sympathize with some of the frustrations they must feel. Take the case of Allison Transmission (NYSE:ALSN).
Allison has built an uncommonly high-margin, high FCF-generating business serving largely commercial truck markets. A couple of years ago, analysts, myself included, started to fret about the risks to the business from electrification (or "electrucks", as I like to call them). Since then, Allison has upped its R&D spending and clarified its commitment to participating in electrification, only to now see analysts (myself not included) fretting about the R&D spending and the future margins. Either way, they can’t win.
To be sure, Allison is tough to model now because there is so much uncertainty about what will happen in the future with the company’s content per vehicle (including, perhaps, gaining share in markets they’re not in today) and margins on that content. Even so, while I don’t see huge undervaluation in the shares now, I do think they should a little higher than they do.
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