The stock has outperformed in 2024
Summary
- While the overall consumer cyclical space is struggling this year, some stocks have thrived.
As we head into the second quarter, investors may be interested in the stocks that have had strong performances so far this year.
While the energy sector has posted the largest year-to-date return at around 11.60%, the consumer cyclical space has declined about 3.19% over the same period.
Sector performance within the S&P 500
Breaking it down further, the vehicles and parts industry has had the second-worst performance within this sector, returning -8.73%.
Industry performance within the consumer cyclical sector
Some stocks within this space, however, are outperforming the S&P 500, which has posted a gain of around 10%. As of April 8, the GuruFocus All-in-One Screener, a Premium feature, found several stocks with a market cap greater than $5 billion that had a higher return relative to the index for the period. It also looked at stocks with price-earnings ratios below 15 and predictability ranks of at least one out of five stars.
Based on these criteria, one of the stocks that has outperformed the benchmark index by at least 15% year to date is Allison Transmission
Performance of Allison's stock and the S&P 500 year to date
ALSN Data by GuruFocus
Operations overview
Founded in 1915, the Indianapolis-based company manufactures automatic transmissions and hybrid propulsion systems for commercial vehicles. Its products can be found in class 4 through class 8 trucks, buses and even some heavy-duty pickup trucks and motor homes. Its operations span the globe, with regional headquarters in the Netherlands, China and Brazil, as well as manufacturing facilities in the U.S., Hungary and India.
The company is organized in a single segment, which generated $3.03 billion in sales last year.
Earnings and financial review
In February, Allison Transmission reported record fourth-quarter and full-year 2023 results.
For the three months ended Dec. 31, the company posted revenue of $775 million, net income of $170 million, or earnings of $1.91 per share, and $270 million in Ebitda. This was a strong improvement from the prior-year quarter.
Quarterly earnings snapshot for Allison
Revenue for the year came in at $3.03 billion, while net income was $673 million, or earnings of $7.40 per share, and Ebitda was $1.08 billion. Again, all of the figures showed growth from 2022.
In a statement, Chairman and CEO David Graziosi commented on “the highest fourth quarter revenue” in Allison's history, which led to a “record year driven by strong demand in our largest end markets, and the dedication from our team to realize growth objectives.”
On the back of this strong performance, Allison is now projecting net sales in the range of $3.05 billion to $3.15 billion for 2024. It also anticipates net income between $635 million and $685 million and adjusted Ebitda of $1.07 billion to $1.13 billion.
“As a result of resilient demand in our largest end markets, at the midpoint we are guiding to another record revenue year for 2024 as we continue to realize our investments and expand our addressable markets,” Graziosi said.
On its balance sheet, however, the company has a sizeable amount of debt at $2.51 billion, while its cash pile amounts to only $555 million. Further, its cash-to-debt ratio of 0.22 indicates it is not able to cover its debt with the amount of cash on hand.
Allison Transmission's cash and debt positions
Regardless, Allison Transmission does have a good interest coverage ratio of 8.59 and a Piotroski F-Score of a perfect 9 out of 9, meaning its operations are healthy. The Altman Z-Score of 2.35, however, suggests it is under some pressure currently.
Buybacks and dividends
In the earnings release, Allison Transmission also revealed it has repurchased over $260 million worth of common stock, which represents nearly 6% of its outstanding shares. It share buyback ratio stands at 4.51%.
Overview of Allison's shares outstanding
On Feb. 21, the company also revealed the board of directors increased the quarterly dividend from 23 cents to 25 cents per share for the first quarter. The payment was distributed March 15.
This marked the fifth consecutive year Allison has increased the quarterly dividend. Its dividend yield is currently 1.15% and the payout ratio is 0.12.
Valuation
Having gained around 45% year to date, the stock has a market cap of $7.21 billion; its shares traded around $82.58 on Monday with a price-earnings ratio of 11.06, a price-book ratio of 5.85 and a price-sales ratio of 2.47.
According to the GF Value Line, the stock appears to be significantly overvalued based on historical ratios, past financial performance and analysts' future earnings projections.
Allison Transmission's GF Value Line
Further, the GF Score of 83 out of 100 indicates the company has good outperformance potential. While it raked in high ratings for growth and profitability, financial strength and momentum were moderate and the value rank was low.
Allison Transmission's GF Score
Guru and insider interest
Despite its outperformance and growing dividend, investors appear to have been selling the stock in recent quarters. However, it may be the result of Allison Transmission's strong gain over the past 12 months.
Guru trading activity for ALSN
During the fourth quarter of 2023, only three gurus entered a new position or added to their holdings. Seven cut back their investments. Notable guru investors include Ray Dalio (Trades, Portfolio)'s Bridgewater Associates, Jeremy Grantham (Trades, Portfolio) and Bernard Horn (Trades, Portfolio).
Insiders of Allison Transmission are also selling off their shares to make a buck. Over the past year, there has been quite a bit of selling activity among the various insiders. Sells peaked, however, following the strong quarterly financial results in February.
Insider trading activity
Overall, the selling activity does not necessarily mean investors should worry as there are likely more gains in store.
Final thoughts
While the stock is considered overvalued and heavy selling activity has occurred among guru investors and insiders alike, Allison Transmission has strong fundamentals and solid operations. As such, it should continue to outperform in the coming months.
Disclosures
I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours.
