Allison Transmission Holdings (ALSN), mcap=$3.7bn, price $37.51 vs $37.57

– A bet is that the transition to electric trucks takes longer than what is priced in the stock.
– Electric battery density is way too low for a viable use in the trucking industry.
– Dominant US supplier of transmissions for medium-duty trucks.
– Trades at 7.2x 2022 PE/FCF and 6x mid-cycle earnings.
– 30%+ EBITDA margins and very high ROC.
– Dominant market share and margins are expected to persist as long as ICE trucks are not replaced by electric vehicles.
– 5-year buyback spend averages 14% of the current market cap.

– Earnings power of $5.9-$6.5/share after stripping out $70m investment in e-axles.
– Assuming 10 years of flat cashflows and following 10 years of linear decline to zero, a reasonable multiple would be 8.3x.

Exp. gain: +35% to $51/share

Full $ALSN write-up (free guest account required):

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