Updated 4/14/25
Allison Transmission Holdings, Inc. (ALSN) is a profitable, well-managed company serving the commercial and defense vehicle markets through its specialty in fully automatic transmissions. With strong fundamentals including a 27% operating margin, over $800 million in trailing twelve-month operating cash flow, and a return on equity above 50%, the business continues to generate solid cash while maintaining a low 12% payout ratio. Leadership, anchored by CEO David Graziosi, has steered the company with a focus on disciplined capital allocation and innovation. While shares have experienced some recent pressure, long-term trends remain intact, supported by healthy free cash flow and consistent dividend growth. The current valuation offers reasonable entry points with a forward P/E around 10 and analyst price targets ranging from $77 to $115. For investors tracking financially sound companies with steady income potential, ALSN presents a compelling profile backed by execution, resilience, and strategic focus.
Recent Events
Allison came off a strong 2023 and entered 2024 with a lot going for it. Earnings nearly doubled on a year-over-year basis in the most recent quarter—up over 96%—and revenue jumped by more than 20%. That kind of growth in a mature industrial name is no small feat.
Margins tell a story too. Operating margin is sitting at 27%, and profit margin just shy of 23%. Those numbers reflect a company running efficiently, with tight controls and a strong sense of pricing power in its markets.
Return on equity is striking, clocking in at over 50%. While that figure is elevated due to a leveraged balance sheet, it’s still a sign that management is squeezing real value out of every dollar shareholders put in.
Key Dividend Metrics
📈 Forward Dividend Yield: 1.22%
💵 Annual Dividend: $1.08
🔁 Dividend Growth (5-Year Average): ~9%
🧱 Payout Ratio: 12.03%
💡 5-Year Average Yield: 1.66%
🧮 Free Cash Flow (TTM): $525.75M
💪 Current Ratio: 3.04
📊 Debt/Equity: 395.90%
Dividend Overview
At first glance, Allison’s dividend yield might not turn many heads. Sitting at 1.22%, it’s not the kind of payout that income investors rush into for immediate cash. But here’s where it gets interesting: the low yield is more a reflection of the company’s conservative payout strategy than a lack of potential.
The dividend is exceptionally well covered. With a payout ratio of just 12%, Allison is distributing a small portion of its earnings to shareholders. That leaves a lot of room to grow the dividend or redirect capital toward debt reduction, buybacks, or reinvestment in the business.
The company generated over $800 million in operating cash flow over the past twelve months, with more than $500 million in free cash flow after capex. That’s a significant cash cushion supporting a very modest dividend. Even if business slows, the company has more than enough dry powder to maintain and grow its payout.
One red flag that might catch a few eyes is the high debt-to-equity ratio—nearly 396%. That’s certainly aggressive, but it’s important to consider context. Allison has a strong current ratio of 3.04, meaning near-term obligations are easily covered. The leverage is part of a broader capital allocation strategy, not a sign of distress. So far, they’ve managed it well.
Dividend Growth and Safety
Here’s where the story gets better. While the yield is modest, the company has delivered steady and respectable dividend growth. Over the past five years, dividends have increased at an average rate of about 9% annually. That’s not just inflation-beating growth—it’s the kind of compounding that can make a real difference over time.
The low payout ratio also suggests that this dividend isn’t just safe—it’s flexible. Allison has a lot of options. They could increase the dividend significantly and still be operating within conservative boundaries. Or they can stay the course, use the cash elsewhere, and reward shareholders through buybacks or debt reduction.
Another point of confidence is how tightly institutions are holding onto the stock. Institutional ownership is well over 100%, which includes synthetic positions and options, but still signals serious confidence from major funds. These investors tend to favor reliable cash flow and strong capital discipline—traits Allison seems to deliver on.
All in, Allison’s dividend doesn’t scream high-yield, but it’s quietly powerful. It’s supported by real earnings, it’s growing steadily, and the company has the financial strength to back it through thick and thin. For long-term investors who prioritize sustainability and upward trajectory in their dividend income, this is a company that fits the mold.
Cash Flow Statement
Allison Transmission’s trailing twelve-month cash flow paints a picture of a company with strong operational efficiency and healthy cash generation. Operating cash flow came in at $801 million TTM, a noticeable increase from the $657 million reported in 2022. This upward trend in core cash generation reflects the business’s resilience and its ability to translate revenue into real cash earnings. After capital expenditures of $143 million, free cash flow stands at $658 million, underscoring a solid margin for reinvestment, debt management, and shareholder returns.
On the financing side, Allison returned a significant amount of cash to shareholders and creditors. With $104 million used for debt repayment and $254 million spent on share repurchases, the company leaned into capital return while also managing its balance sheet. Despite these outflows, the end cash position rose dramatically to $781 million—more than tripling from 2022. This growth in liquidity, even after aggressive financial activity, highlights the strength of their free cash flow engine and provides a strong buffer for future flexibility.
Analyst Ratings
📉 Allison Transmission (NYSE: ALSN) has recently seen some shifts in analyst sentiment. JPMorgan Chase & Co. lowered their price target from $110 to $98, maintaining a neutral stance. Similarly, Citigroup reduced its target from $108 to $95, also keeping a neutral rating. These adjustments reflect a cautious outlook, possibly due to expectations of slower revenue growth in the coming quarters.
📊 Despite these downgrades, the consensus among analysts remains a “Hold.” The average 12-month price target is approximately $99.50, with estimates ranging from a low of $77 to a high of $115. This suggests that while there is some concern about near-term performance, the stock is still viewed as fairly valued.
📦 The cautious approach by analysts may be influenced by the company’s recent guidance, which indicated modest growth expectations for 2025. While Allison Transmission has a strong track record and solid fundamentals, the anticipated slowdown in revenue growth has led to more conservative projections.
🧭 Overall, the analyst community appears to be taking a wait-and-see approach, balancing the company’s historical performance with concerns about future growth prospects.
Earning Report Summary
Allison Transmission wrapped up 2024 on a high note, putting together a year that stands out across the board. The company posted record net sales of $3.2 billion for the full year, with the final quarter alone pulling in $796 million. That’s not just a strong quarter—it’s a clear sign of momentum. A big part of that lift came from their core market in North America, where demand for on-highway commercial vehicles stayed strong, driving a 15% jump compared to the year before.
Strong Profits and Efficient Execution
Profitability was another bright spot. Full-year earnings per share reached $8.31, climbing 12% over the prior year. That kind of growth doesn’t happen by accident. It came from a mix of smart operational decisions, a steady product mix, and continued strength in both the aftermarket and defense segments. These areas helped create a dependable base of revenue even when other parts of the market were more unpredictable.
Leadership’s Take and the Road Ahead
During the earnings call, CEO Dave Graziosi spoke with clear confidence. He pointed to the company’s investments in innovation and its ongoing efforts to expand globally as key pillars for future growth. He made it clear that Allison isn’t just focused on short-term numbers—they’re building for long-term success. CFO Fred Bohley echoed that focus on discipline, especially when it comes to managing capital. Thanks to strong free cash flow, the company had the flexibility to pay down debt and return capital to shareholders, without compromising on investment in the business.
Looking forward, the message from leadership was pretty straightforward: keep doing what works, but stay sharp. The team knows there are headwinds in the broader economy, but they’re leaning into what they can control—strong products, efficient operations, and smart capital use. They also hinted at continued opportunities in both commercial and defense markets, and seemed ready to capitalize on them. All in all, it was the kind of quarter that gives investors a sense that the fundamentals here are not just solid—they’re getting stronger.
Chart Analysis
The stock price of ALSN has taken investors on a full cycle over the past year, starting near the mid-$70s before pushing above $120 by late December, then sliding back to around $90 in recent weeks. That kind of movement shows us a full rhythm of strength, peak, and now consolidation.
Price Action and Moving Averages
There’s a clear uptrend that began in July, marked by a sharp climb through the fall that peaked in December. The red 50-day moving average followed closely, leading the charge and staying well above the slower-moving 200-day average. But that dynamic flipped in the past couple of months. The 50-day MA has rolled over and is now pointing downward, while the 200-day is still rising, although more slowly. This crossover signals a loss of short-term momentum, and the stock is now testing its longer-term support levels.
Volume Behavior
Volume has remained fairly stable throughout the year, but there was a noticeable uptick during sharp price drops, especially in March and early April. That kind of activity usually points to institutional repositioning or heavy selling pressure—something to watch if it continues.
RSI Insights
The Relative Strength Index dipped below 30 recently, pushing into oversold territory. That’s the first time in quite a while the stock has reached that zone. It bounced back quickly, now hovering around 45, which suggests the worst of the selling might be behind for now, but the stock still isn’t in strongly bullish territory. There’s some indecision in momentum, with no firm conviction either way just yet.
Overall Context
This chart tells the story of a name that surged with strong momentum through 2023, only to cool off in early 2024. While it’s still above its levels from a year ago, the recent weakness has taken some of the shine off. The long-term trend remains intact for now, with the 200-day average still rising, but it’s being tested. Whether the stock finds its footing soon or slips into a longer consolidation phase will depend on how it behaves around this zone in the coming weeks.
Management Team
Allison Transmission is guided by a leadership team with deep industry knowledge and long-standing ties to the company. David Graziosi has been the CEO since 2018, but his connection to Allison dates back to 2007 when he came on board as Chief Financial Officer. His background in finance and steady leadership style have helped Allison navigate multiple market environments with clarity and discipline.
Recently, Scott Mell stepped in as the new CFO. He brings a strong international perspective and decades of experience in financial leadership roles. His presence is expected to sharpen the company’s focus on operational discipline and long-term strategic planning.
The rest of the executive team features a blend of expertise in engineering, operations, product development, and global sales. Together, they form a leadership structure that has kept Allison well-aligned with both customer demands and the broader direction of the commercial and defense vehicle markets.
Valuation and Stock Performance
Allison’s stock has held up well, currently trading in the high $80s. It’s not just the price that tells the story, though. From a valuation standpoint, the company looks reasonably valued. The forward P/E sits around 10, and the trailing P/E is just slightly higher. This positions the stock as attractively priced, especially compared to others in the industrial sector. The PEG ratio, at 1.59, suggests expectations for future earnings growth are factored in but not overpriced.
Operating margins of 27% and a return on equity north of 50% underscore a strong foundation. These numbers reflect the company’s efficiency and its ability to generate profits with relatively lower capital intensity compared to peers.
Analyst sentiment has been measured, with most sitting in the “Hold” camp. Price targets vary, which shows there’s some divergence in how the future is being interpreted, but the upper end still implies meaningful upside from current levels.
Risks and Considerations
There are a few points to keep in mind with Allison. First and foremost, the balance sheet carries a heavy load of debt. The debt-to-equity ratio is close to 396%, which could limit flexibility if conditions change. That’s not necessarily a red flag right now, given the company’s strong cash flows and manageable interest obligations, but it’s something to watch.
Then there’s the shift happening in the industry itself. The rise of electric vehicles and alternative drivetrains brings new competitive pressures. Some newer technologies reduce the need for traditional transmissions altogether, which challenges companies like Allison to keep evolving.
Lastly, Allison operates in markets that are cyclical by nature. Economic slowdowns tend to hit commercial vehicle demand fairly hard. So, even though the business is well-diversified within its niche, external factors like freight demand, infrastructure spending, or defense budgets can still sway performance.
Final Thoughts
Allison Transmission is a company that knows its space well. It’s not chasing headlines or speculative trends—it’s sticking to what it does best: making reliable, high-performance transmissions for essential sectors. The financials are sound, leadership is experienced, and the commitment to long-term shareholder value is clear.
Still, as with any investment, it’s not without risk. The debt load and changes in drivetrain technology are important variables. But for those looking at quality companies with strong operations and a measured growth strategy, Allison remains one worth watching. It may not be the most glamorous name out there, but sometimes, it’s the quiet operators that prove the most reliable over time.