ALSN - Allison Transmission: The Market Yet To Recognize This Compounder

2024-05-15 23:21:04 ET

Summary

• Allison has achieved double-digit profit growth over the past decade through improved operating and capital efficiencies.
• The company is financially sound. It has a good capital allocation plan with a low Reinvestment rate.
• Despite its compounding track record, the market has not fully recognized Allison's value, presenting an investment opportunity with a 30% margin of safety.

Investment Thesis

Over the past decade, Allison Transmission Holdings, Inc. ( ALSN ) delivered annual compounded double-digit profit growth. The company achieved this despite modest revenue growth by improving operating and capital efficiencies. Allison is also financially sound with a good capital allocation plan. Despite being a wonderful company in the Buffett sense, the market has yet to recognize this. My valuation showed more than a 30% margin of safety at the current market price.

Business background

Allison is the world's largest manufacturer of fully automatic transmissions for medium and heavy-duty commercial and U.S. defense vehicles. It is also a leader in electrified propulsion systems....

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