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Allison Transmission Holdings (NYSE:ALSN) moved higher in afternoon trading on Monday after JPMorgan upgraded the auto supplier stock to a Neutral rating after having it set at Underweight. The firm thinks the risk-reward profile on Allison Transmission (ALSN) is now balanced at the current valuation.
Analyst Tami Zakaria and team see electrification/alternative propulsion as a long term risk for Allison Transmission (ALSN), but believe the adoption is happening at a slower-than-expected pace than originally anticipated, which resets the way investors should view the stock for the near term.
“Looking into 2024, 30-40% of ALSN’s NA on-highway business is exposed to municipalities that should be relatively more stable in the ongoing freight market downturn than linehaul trucks (where it has minimal exposure), parts should continue to see strength due to exposure to O&G, and we see upside to gross margin as ALSN continues to catch up on price-cost at a lag.”
JPMorgan established December 2024 price target of $70, which works out to 7X the EV/EBITDA multiple on 2025 estimates. Zakaria noted the multiple is ~1X below Truck and Components peers, which he believes is justified given the significant risk to the legacy business.
Shares of ALSN were up 1.55% at 12:44 p.m to $59.43. The stock is a bit more than 43% on a year-to-date basis to rank 6th out of the 49 publicly-trade auto parts stocks.