Allison Transmission Holdings ALSN shares have gained 32.1% over the past six months, outperforming the Zacks Auto, Tires and Trucks sector’s appreciation of 18% and the Zacks Automotive – Original Equipment industry’s return of 0.1%. The S&P 500 index has appreciated 11.1% in the same time frame. ALSN’s strong fundamentals and growth prospects make it a compelling buy.

ALSN is poised to capitalize on growing defense budgets, rising infrastructure spending and increasing demand for specialized vehicle transmissions. The company’s stock has a Value Score of A, and is trading at a forward 12-month price/sales of 10.78X, significantly lower than the broader sector’s 22.64X, indicating that it is currently undervalued.

Six-Month Performance

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Allison achieved record net sales of $3.2 billion in 2024, driven by strong demand for its 3,000 and 4,000 series products in its North America on-highway market, where revenues rose 15% year over year to $1.8 billion. The growth was fueled by the rising demand for Class 8 vocational vehicles, supported by robust U.S. infrastructure spending, and is expected to continue in 2025.

Furthermore, the company’s defense segment saw a 28% year-over-year increase in sales to a decade-high $212 million, as geopolitical uncertainties drove higher global defense spending.

Allison is expanding its product portfolio to drive future growth. Its wide-mining dump truck initiative represents a $100 million annual revenue opportunity. It has also launched its 6,000 series transmission, designed for heavy-duty and off-highway vehicles. In its partnership with XCMG, Allison has introduced an uprated variant of its 4,000 series transmission, TerraTran, strengthening its position in the mining and construction markets. This momentum is expected to be sustained in 2025.

ALSN’s e-Gen Power portfolio, comprising 100S, 100D, 130S, 85S and 130D e-axles, is adapting to the changing dynamics of the auto industry. In particular, the eGen Flex portfolio and the eGen Force portfolio are bolstering Allison’s prospects.

A strong cash flow and healthy returns to its shareholders are further boosting investor confidence in the company. ALSN generated $658 million in adjusted free cash flow in 2024, allowing it to reduce debt by over $100 million and return capital to its shareholders. Allison has repurchased over $250 million in shares and paid a quarterly dividend that has increased 67% over the past five years.

ALSN’s Positive Guidance for 2025

For 2025, Allison expects net sales to be in the range of $3.2 billion to $3.3 billion, driven by increased demand for track vehicle applications and robust North American vocational demand.

Net income is anticipated in the range of $735 million to $785 million, compared to $731 million in 2024. Adjusted EBITDA is expected to be between $1.17 billion and $1.23 billion, contrasted to $1.17 billion in 2025. Net cash provided by operating activities is expected to be $800-$860 million, compared to $801 million in 2024.

Capital expenditures are expected to be $165-$175 million. Adjusted free cash flow is anticipated in the range of $635 million to $685 million.

ALSN's Earnings Estimates Indicate Y/Y Growth

The Zacks Consensus Estimate for ALSN’s first-quarter 2025 EPS is pegged at $2.17, indicating year-over-year growth of 14.21%.

The consensus mark for ALSN’s 2025 EPS is pegged at $9.22, indicating growth of 10.95% on a year-over-year basis.

ALSN beat the Zacks Consensus Estimate for earnings in the trailing four quarters, the average surprise being 5.64%.

Conclusion

With a robust financial performance, strategic growth initiatives, an innovative portfolio and positive earnings projections for 2025, Allison presents an attractive investment opportunity.

ALSN currently carries a Zacks Rank #2 (Buy), suggesting that it may be wise for investors to start accumulating the stock now.

Other Key Picks

If you are interested in investing in this space, consider other top-ranked stocks like Dana DAN, Garrett Motion GTX and Custom Truck One Source CTOS. DAN currently sports a Zacks Rank #1 (Strong Buy), and GTX and CTOS carry a Zacks Rank #2 each. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for DAN’s 2025 earnings implies 79.17% growth on a year-over-year basis.

The Zacks Consensus Estimate for GTX’s 2025 earnings implies 17.92% year-over-year growth.

The Zacks Consensus Estimate for CTOS’ 2025 earnings implies 75% year-over-year growth.

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