Allison Boosts Payouts & Buybacks: Is it Time to Buy the Stock Now?

Core Viewpoint - Allison Transmission has demonstrated a commitment to shareholder returns through dividend increases and share repurchases, while also positioning itself for future growth amid a challenging economic environment [1][3][19]. Financial Performance - In 2024, Allison generated an adjusted free cash flow of $658 million and repaid over $100 million of term loan debt, increasing cash and cash equivalents to $781 million from $555 million year-over-year [2]. - The company reported record revenues of $3.2 billion in 2024, with expectations for net sales in the range of $3.2-$3.3 billion for 2025, driven by strong demand in vocational vehicle markets [4]. - As of the end of 2024, long-term debt decreased to $2.39 billion from $2.49 billion in 2023 [2]. Shareholder Returns - Allison raised its first-quarter 2025 dividend by 8% to 27 cents, marking the sixth consecutive year of dividend increases, with a sustainable payout ratio of around 12% [1]. - The company authorized an additional $1 billion for share repurchases, having already bought back $250 million worth of stock in 2024, and repurchased over 63% of its outstanding shares since its IPO in 2012 [3]. Market Position and Growth Drivers - The company is well-positioned to benefit from rising global defense budgets, with sales in its Defense market increasing by 28% year-over-year to a decade-high of $212 million [5]. - Allison's focus on innovation, including fully automatic transmissions and electrification solutions, is expected to unlock new growth opportunities [6]. - International expansion efforts, particularly in Brazil and partnerships in Africa, Asia, and South America, reinforce its global growth strategy [7]. Challenges and Economic Factors - Rising R&D expenses, driven by increased spending on product initiatives, may impact short-term profitability despite supporting long-term growth [8]. - Inflationary pressures have led to higher costs for raw materials and labor, which could affect profitability if the company struggles to pass on these costs [9]. - Geopolitical risks, supply chain disruptions, and economic uncertainty pose challenges to the commercial vehicle industry, which is sensitive to economic downturns [10]. Future Estimates - The Zacks Consensus Estimate for Allison's 2025 sales and EPS indicates a year-over-year increase of 1.4% and 9%, respectively, with further growth projected for 2026 [11]. - However, EPS estimates for the first two quarters of 2025 and the full year have seen downward revisions over the past 30 days [12]. Valuation and Performance - Year-to-date, Allison shares have declined by 7%, underperforming its industry and peers [13]. - The company is currently trading at a forward sales multiple of 2.55X, which is higher than some peers but similar to others in the industry [16]. Analyst Recommendations - The average brokerage recommendation for Allison is 3 on a scale of 1 to 5, with a mix of "Hold," "Strong Buy/Buy," and "Sell/Strong Sell" ratings among analysts [20].