ALSN Stock Forecast & Price Target

Allison Transmission reported a significant increase in gross profit and operating income, up 11% and 17% year-over-year, respectively, driven by price increases despite higher manufacturing expenses. The company's North American on-highway sales saw robust growth of 22% year-over-year, supported by demand for Class 8 vocational vehicles and continued price adjustments, while defense sales also showed strong momentum, rising 23% year-over-year. With management raising its fiscal year 2024 guidance and expectations for accelerated growth outside of North America, the favorable pricing dynamics and investments in international sales force position Allison Transmission for sustained financial performance.

Allison Transmission faces significant headwinds, with a stark 89% year-over-year decline in North American off-highway sales attributed to reduced demand in the energy sector, and flat revenues in its outside North America off-highway segment driven by weaker performance in mining and construction. The company’s trailing net debt-to-EBITDA ratio of 1.9x positions it at the higher end of the spectrum for its peer group, raising concerns about financial leverage amid declining revenues. Additionally, the volatility associated with economic conditions and potential cuts in defense spending could further weaken demand, compounded by risks related to high customer concentration and competition from rival transmission manufacturers.