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Why Is Allison Transmission (ALSN) Up 11.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for Allison Transmission (ALSN). Shares have added about 11.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Allison Transmission due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Allison's Q4 Earnings Miss, Sales Top Estimates

Allison posted fourth-quarter earnings of 53 cents a share, lagging the Zacks Consensus Estimate of 61 cents. The bottom line also declined 41.1% on a year-over-year basis. Quarterly revenues of $535 contracted 13.3% from the comparable year-ago period but managed to surpass the consensus mark of $510 million.

Segmental Performance

Allison Transmission segregates its revenues by the end markets served, which are as follows:

For the reported quarter, net sales in the North America On-Highway end market dipped 14% year over year to $284 million on dwindling demand for its products amid coronavirus woes.

For the October-December period, net sales in the North America Off-Highway end market remained flat year over year at $1 million amid persistent weakness in hydraulic fracturing applications.

For the fourth quarter, net sales in the Defense end market edged up 5% year over year to $44 million on higher tracked vehicle demand. The figure, however, fell short of the Zacks Consensus Estimate of $46.15 million.

The Outside North America On-Highway end market’s net sales fell 15% year on year to $77 million during the December-end quarter on soft global demand, particularly in Asia and South America, amid the pandemic.

Net sales in the Outside North America Off-Highway end market slumped 39% year on year to $11 million for the fourth quarter due to dismal demand in the energy sector.

Net sales in the Service Parts, Support Equipment & Other end market slipped 13% year on year to $118 million for the reported quarter, owing to shrinking demand for North America service parts and support equipment. The figure also missed the Zacks Consensus Estimate of $123 million.

Financial Position & Dividend

Allison Transmission had cash and cash equivalents of $310 million on Dec 31, 2020 compared with $192 million in the corresponding period of 2019. As of 2020-end, long-term debt was $2,507 million compared with $2,512 million as of Dec 31, 2019. Adjusted free cash flow for the reported quarter was $128 million, up from the prior-year quarter’s $121 million, thanks to reduced capital outlay, partly offset by lower operating cash flows.

Encouragingly, the company hiked quarterly dividend from 17 cents a share to 19 cents. First-quarter 2021 dividend of 19 cents per share will be payable on Mar 5 to shareholders of record as of Feb 22. 

2021 View

Allison Transmission projects net sales for 2021 in the range of $2,265-$2,415 million, indicating an increase from $2,081 million recorded in 2020 on the back of improving demand in global On-Highway and Service Parts, Support Equipment & Other end markets, along with price increases on certain products. Net income and adjusted EBITDA are envisioned in the band of $375-$445 million and $770-$860 million, respectively. Adjusted free cash flow is expected between $390 million and $450 million. Capital expenditure is projected between $170 million and $180 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -7.63% due to these changes.

VGM Scores

Currently, Allison Transmission has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Allison Transmission has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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