Allison Transmission (ALSN) Upgraded to Buy: Here's What You Should Know

The Auto-Tires-Trucks group has plenty of great stocks, but investors should always be looking for companies that are outperforming their peers. Is Allison Transmission (ALSN) one of those stocks right now? A quick glance at the company's year-to-date performance in comparison to the rest of the Auto-Tires-Trucks sector should help us answer this question.

Allison Transmission is a member of our Auto-Tires-Trucks group, which includes 102 different companies and currently sits at #15 in the Zacks Sector Rank. The Zacks Sector Rank gauges the strength of our 16 individual sector groups by measuring the average Zacks Rank of the individual stocks within the groups.

The Zacks Rank is a successful stock-picking model that emphasizes earnings estimates and estimate revisions. The system highlights a number of different stocks that could be poised to outperform the broader market over the next one to three months. Allison Transmission is currently sporting a Zacks Rank of #2 (Buy).

Over the past 90 days, the Zacks Consensus Estimate for ALSN's full-year earnings has moved 3.9% higher. This means that analyst sentiment is stronger and the stock's earnings outlook is improving.

Our latest available data shows that ALSN has returned about 101.7% since the start of the calendar year. At the same time, Auto-Tires-Trucks stocks have lost an average of 1.5%. This means that Allison Transmission is outperforming the sector as a whole this year.

Another Auto-Tires-Trucks stock, which has outperformed the sector so far this year, is Cummins (CMI). The stock has returned 48.6% year-to-date.

Over the past three months, Cummins' consensus EPS estimate for the current year has increased 3.3%. The stock currently has a Zacks Rank #2 (Buy).

Looking more specifically, Allison Transmission belongs to the Automotive - Original Equipment industry, a group that includes 51 individual stocks and currently sits at #176 in the Zacks Industry Rank. On average, stocks in this group have lost 23.5% this year, meaning that ALSN is performing better in terms of year-to-date returns.

On the other hand, Cummins belongs to the Automotive - Internal Combustion Engines industry. This 1-stock industry is currently ranked #2. The industry has moved +48.6% year to date.

Investors with an interest in Auto-Tires-Trucks stocks should continue to track Allison Transmission and Cummins. These stocks will be looking to continue their solid performance.

Zacks Investment Research

It doesn't matter your age or experience: taking full advantage of the stock market and investing with confidence are common goals for all investors. Luckily, Zacks Premium offers several different ways to do both.

Featuring daily updates of the Zacks Rank and Zacks Industry Rank, full access to the Zacks #1 Rank List, Equity Research reports, and Premium stock screens, the research service can help you become a smarter, more self-assured investor.

Zacks Premium includes access to the Zacks Style Scores as well.

What are the Zacks Style Scores?

The Zacks Style Scores, developed alongside the Zacks Rank, are complementary indicators that rate stocks based on three widely-followed investing methodologies; they also help investors pick stocks with the best chances of beating the market over the next 30 days.

Each stock is assigned a rating of A, B, C, D, or F based on their value, growth, and momentum characteristics. Just like in school, an A is better than a B, a B is better than a C, and so on -- that means the better the score, the better chance the stock will outperform.

The Style Scores are broken down into four categories:

Value Score

Finding good stocks at good prices, and discovering which companies are trading under their true value, are what value investors like to focus on. So, the Value Style Score takes into account ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and a host of other multiples to highlight the most attractive and discounted stocks.

Growth Score

Growth investors are more concerned with a stock's future prospects, and the overall financial health and strength of a company. Thus, the Growth Style Score analyzes characteristics like projected and historic earnings, sales, and cash flow to find stocks that will see sustainable growth over time.

Momentum Score

Momentum trading is all about taking advantage of upward or downward trends in a stock's price or earnings outlook, and these investors live by the saying "the trend is your friend." The Momentum Style Score can pinpoint good times to build a position in a stock, using factors like one-week price change and the monthly percentage change in earnings estimates.

VGM Score

What if you like to use all three types of investing? The VGM Score is a combination of all Style Scores, making it one of the most comprehensive indicators to use with the Zacks Rank. It rates each stock on their combined weighted styles, which helps narrow down the companies with the most attractive value, best growth forecast, and most promising momentum.

How Style Scores Work with the Zacks Rank

The Zacks Rank, which is a proprietary stock-rating model, employs earnings estimate revisions, or changes to a company's earnings expectations, to make building a winning portfolio easier.

Investors can count on the Zacks Rank's success, with #1 (Strong Buy) stocks producing an unmatched +25.41% average annual return since 1988, more than double the S&P 500's performance. But the model rates a large number of stocks, and there are over 200 companies with a Strong Buy rank, plus another 600 with a #2 (Buy) rank, on any given day.

With more than 800 top-rated stocks to choose from, it can certainly feel overwhelming to pick the ones that are right for you and your investing journey.

That's where the Style Scores come in.

You want to make sure you're buying stocks with the highest likelihood of success, and to do that, you'll need to pick stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B. If you like a stock that only as a #3 (Hold) rank, it should also have Scores of A or B to guarantee as much upside potential as possible.

Since the Scores were created to work together with the Zacks Rank, the direction of a stock's earnings estimate revisions should be a key factor when choosing which stocks to buy.

Here's an example: a stock with a #4 (Sell) or #5 (Strong Sell) rating, even one with Style Scores of A and B, still has a downward-trending earnings outlook, and a bigger chance its share price will decrease too.

Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.

Stock to Watch: Allison Transmission (ALSN)

Headquartered in Indianapolis, IN, Allison Transmission Holdings, Inc. is a manufacturer of fully-automatic transmissions for medium and heavy-duty commercial and heavy-tactical U.S. defense vehicles. In fact, the company is the largest producer of fully-automatic transmissions, holding the leading position in several niche markets. The firm also offers electric hybrid and fully electric propulsion systems.

ALSN is a #3 (Hold) on the Zacks Rank, with a VGM Score of A.

Momentum investors should take note of this Auto-Tires-Trucks stock. ALSN has a Momentum Style Score of A, and shares are up 7.4% over the past four weeks.

For fiscal 2024, five analysts revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate has increased $0.36 to $8.25 per share. ALSN boasts an average earnings surprise of 13.2%.

With a solid Zacks Rank and top-tier Momentum and VGM Style Scores, ALSN should be on investors' short list.

Zacks Investment Research

For most investors, how much a stock's price changes over time is important. Not only can it impact your investment portfolio, but it can also help you compare investment results across sectors and industries.

The fear of missing out, or FOMO, also plays a factor in investing, especially with particular tech giants, as well as popular consumer-facing stocks.

What if you'd invested in Allison Transmission (ALSN) ten years ago? It may not have been easy to hold on to ALSN for all that time, but if you did, how much would your investment be worth today?

Allison Transmission's Business In-Depth

With that in mind, let's take a look at Allison Transmission's main business drivers.

Headquartered in Indianapolis, IN, Allison Transmission Holdings, Inc. is a manufacturer of fully-automatic transmissions for medium and heavy-duty commercial and heavy-tactical U.S. defense vehicles. In fact, the company is the largest producer of fully-automatic transmissions, holding the leading position in several niche markets. The firm also offers electric hybrid and fully electric propulsion systems.

The company segregates revenues by end markets. In North America, it serves On-Highway (contributed 50.4% in 2023) and Off-Highway (2%) end markets. Likewise, Outside North America, it serves On-Highway (15.7%) and Off-Highway (3.4%) end markets. Besides on and off-highway, it also serves Defense (5.5%), and Service Parts, Support Equipment and Other (23%) end markets.

Within the On-Highway market, it serves fully-automatic transmissions in North America, majorly catering to Class 4-5, Class 6-7 and Class 8 straight trucks, conventional transit, shuttle and coach buses, school buses and motorhomes. Outside North America, Europe, the Middle East, Africa (EMEA) is the company’s largest market.

In the Off-highway market, the company offers products used in vehicles and equipment that serve energy, mining and construction applications in North America and overseas. Outside North America, Asia-Pacific and EMEA constitute the firm’s key markets.

Allison’s Defense end market helps in providing a hedge against economic cycles and disruptions. It supplies transmissions for medium- and heavy-tactical-wheeled vehicle platforms, including the Joint Light Tactical Vehicle, Light Armored Vehicle, Stryker Armored Vehicle, Mine Resistant Ambush Protected Vehicle, Heavy Dump Truck, Heavy Equipment Transporters, et al.

The company’s Service Parts, Support Equipment and Other end market comprises Allison-branded service parts and transmission fluids, aluminium die cast components, extended transmission coverage, royalties, saleable engineering and support equipment.

Bottom Line

Anyone can invest, but building a successful investment portfolio requires research, patience, and a little bit of risk. So, if you had invested in Allison Transmission ten years ago, you're likely feeling pretty good about your investment today.

According to our calculations, a $1000 investment made in November 2014 would be worth $3,302.65, or a gain of 230.26%, as of November 4, 2024, and this return excludes dividends but includes price increases.

The S&P 500 rose 183.88% and the price of gold increased 124.98% over the same time frame in comparison.

Going forward, analysts are expecting more upside for ALSN.

While rising R&D expenses and labor costs, stretched balance sheet, and uncertain macroeconomic conditions weigh on Allison’s near-term prospects, several positives about the company lead us to believe in its longer-term prospects. For starters, Allison is seeing robust demand from the North America On-Highway end market thanks to strong demand for Class 8 vocational vehicles. The company is also well-positioned to benefit from rising global defense budgets. For 2024, Allison is targeting additional revenues from this market. Focus on advanced technology and continued innovation in product development augur well. Strategic partnerships provide the company with growth opportunities in global export markets. Allison's investor-friendly moves also instill confidence. Investors should wait for a better exit point.

The stock has jumped 8.30% over the past four weeks. Additionally, no earnings estimate has gone lower in the past two months, compared to 5 higher, for fiscal 2024; the consensus estimate has moved up as well.

Zacks Investment Research

Taking full advantage of the stock market and investing with confidence are common goals for new and old investors, and Zacks Premium offers many different ways to do both.

Featuring daily updates of the Zacks Rank and Zacks Industry Rank, full access to the Zacks #1 Rank List, Equity Research reports, and Premium stock screens, the research service can help you become a smarter, more self-assured investor.

Zacks Premium also includes the Zacks Style Scores.

What are the Zacks Style Scores?

The Zacks Style Scores is a unique set of guidelines that rates stocks based on three popular investing types, and were developed as complementary indicators for the Zacks Rank. This combination helps investors choose securities with the highest chances of beating the market over the next 30 days.

Each stock is assigned a rating of A, B, C, D, or F based on their value, growth, and momentum characteristics. Just like in school, an A is better than a B, a B is better than a C, and so on -- that means the better the score, the better chance the stock will outperform.

The Style Scores are broken down into four categories:

Value Score

For value investors, it's all about finding good stocks at good prices, and discovering which companies are trading under their true value before the broader market catches on. The Value Style Score utilizes ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and a host of other multiples to help pick out the most attractive and discounted stocks.

Growth Score

Growth investors, on the other hand, are more concerned with a company's financial strength and health, and its future outlook. The Growth Style Score examines things like projected and historic earnings, sales, and cash flow to find stocks that will experience sustainable growth over time.

Momentum Score

Momentum traders and investors live by the saying "the trend is your friend." This investing style is all about taking advantage of upward or downward trends in a stock's price or earnings outlook. Employing factors like one-week price change and the monthly percentage change in earnings estimates, the Momentum Style Score can indicate favorable times to build a position in high-momentum stocks.

VGM Score

If you like to use all three kinds of investing, then the VGM Score is for you. It's a combination of all Style Scores, and is an important indicator to use with the Zacks Rank. The VGM Score rates each stock on their shared weighted styles, narrowing down the companies with the most attractive value, best growth forecast, and most promising momentum.

How Style Scores Work with the Zacks Rank

The Zacks Rank is a proprietary stock-rating model that harnesses the power of earnings estimate revisions, or changes to a company's earnings expectations, to help investors build a successful portfolio.

It's highly successful, with #1 (Strong Buy) stocks producing an unmatched +25.41% average annual return since 1988. That's more than double the S&P 500. But because of the large number of stocks we rate, there are over 200 companies with a Strong Buy rank, plus another 600 with a #2 (Buy) rank, on any given day.

With more than 800 top-rated stocks to choose from, it can certainly feel overwhelming to pick the ones that are right for you and your investing journey.

That's where the Style Scores come in.

You want to make sure you're buying stocks with the highest likelihood of success, and to do that, you'll need to pick stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B. If you like a stock that only as a #3 (Hold) rank, it should also have Scores of A or B to guarantee as much upside potential as possible.

As mentioned above, the Scores are designed to work with the Zacks Rank, so any change to a company's earnings outlook should be a deciding factor when picking which stocks to buy.

Here's an example: a stock with a #4 (Sell) or #5 (Strong Sell) rating, even one with Style Scores of A and B, still has a downward-trending earnings outlook, and a bigger chance its share price will decrease too.

Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.

Stock to Watch: Allison Transmission (ALSN)

Headquartered in Indianapolis, IN, Allison Transmission Holdings, Inc. is a manufacturer of fully-automatic transmissions for medium and heavy-duty commercial and heavy-tactical U.S. defense vehicles. In fact, the company is the largest producer of fully-automatic transmissions, holding the leading position in several niche markets. The firm also offers electric hybrid and fully electric propulsion systems.

ALSN is a #3 (Hold) on the Zacks Rank, with a VGM Score of B.

It also boasts a Value Style Score of B thanks to attractive valuation metrics like a forward P/E ratio of 13.15; value investors should take notice.

Five analysts revised their earnings estimate upwards in the last 60 days for fiscal 2024. The Zacks Consensus Estimate has increased $0.24 to $8.13 per share. ALSN boasts an average earnings surprise of 13.2%.

With a solid Zacks Rank and top-tier Value and VGM Style Scores, ALSN should be on investors' short list.

Zacks Investment Research