ALSN: Bearish Signals for Allison Transmission (ALSN)

Allison Transmission is a leading designer and manufacturer of propulsion solutions for commercial and defense vehicles, and the largest global manufacturer of medium- and heavy-duty fully automatic transmissions. Their products, sold under the 'Allison Transmission' brand and 'ReTran' brand (remanufactured transmissions), are used in on-highway vehicles (distribution, refuse, construction, fire and emergency), buses, motorhomes, off-highway vehicles and equipment (energy, mining, construction and agriculture), and defense vehicles. Allison serves customers globally, primarily in North America, through an independent network of distributors and dealers. The company differentiates itself by focusing on the performance, reliability, and fuel efficiency of its propulsion solutions, targeting vocations with 'start and stop' activity where fully automatic transmissions offer superior acceleration and reduced operating costs. They also provide electric hybrid ('eGen Flex') and fully electric ('eGen Power') propulsion solutions.

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ALSN's technical outlook is bearish. The recent price action shows a clear downtrend, with the price falling from around $90 in early July to the current level of $79.42. The price is below its 50-day SMA, which is itself declining, and also below the 21-day EMA, reinforcing the bearish sentiment. While there is no 200-day SMA to compare against, the overall trend remains negative. Momentum indicators support this bearish view. The MACD is negative and trending downward, with the MACD histogram consistently negative, indicating sustained bearish momentum. The RSI is also below 50, suggesting continued weakness. The Stochastic Oscillator, while showing some recent upward movement, remains at a relatively low level. Additionally, the ADX is above 10, suggesting the presence of a trend, and the ROC is negative, confirming downward momentum. The Bollinger Bands indicate that the price is near the lower band, suggesting the stock may be oversold, though this is not enough to outweigh other bearish signals. Overall, the technical indicators suggest further downside potential for ALSN over the next 1-3 months.

Allison Transmission's MD&A reveals a challenging quarter. 'Net sales' for the three months ended September 30, 2025, decreased by 16% to $693 million, compared to $824 million in the same period of 2024, driven by lower demand in North America On-Highway and Global Off-Highway markets. The 'Gross profit' margin also experienced a slight decrease, with gross profit as a percent of 'net sales' decreasing by 60 basis points compared to the same period in 2024. For the nine months ended September 30, 2025, 'net sales' decreased by 6% to $2,273 million, compared to $2,429 million for the nine months ended September 30, 2024. 'Net cash provided by operating activities' for the nine months ended September 30, 2025, was $593 million, compared to $590 million for the nine months ended September 30, 2024. The company expects 'decreased net sales' in its North America On-Highway end market in 2025, but anticipates this will be 'partially offset by price increases on certain products and increased demand for Tracked vehicle applications in our Defense end market'. The company is also pursuing the acquisition of Dana's off-highway business for approximately $2,732 million, which is projected to close late in the fourth quarter of 2025, pending regulatory approvals, signaling a strategic shift despite current headwinds.

Allison Transmission's Q2 2025 earnings call reveals a cautiously bearish outlook. While the company reported flat year-over-year net sales of $814 million, driven by a 47% increase in defense and an 11% increase in outside North America On-Highway, management revised full-year 2025 guidance downwards. They now expect net sales to be in the range of $3.075 billion to $3.175 billion, citing 'revisions in North America On-Highway build rates are significant'. This revision reflects OEM responses to near-term market demand conditions, including layoffs, shift reductions, and extended shutdowns due to elevated dealer inventories. Despite these headwinds, management maintains the midpoint of the implied full-year adjusted EBITDA margin guidance. The acquisition of Dana's Off-Highway business is expected to strengthen Allison's position as a premier industrial company, but the near-term focus is on combining the businesses and realizing cost synergies. Management's tone suggests a proactive approach to managing costs and adapting to market conditions, but the lowered guidance and acknowledgment of significant challenges in the North American On-Highway market indicate potential near-term pressure on the stock.

ALSN's financial performance presents a somewhat positive picture, though with some areas of concern. Revenue has shown an overall increasing trend, starting from $775M in Q4 2023 and reaching $693M in Q3 2025; however, there's fluctuation in between, peaking at $824M in Q3 2024 and $816M in Q2 2024. The gross profit ratio has remained relatively stable, fluctuating between 0.463 and 0.493, with the latest quarter at 0.474. Operating cash flow has been consistently positive, with $228M in the most recent quarter, indicating the company's ability to generate cash from its operations. Total debt has remained relatively stable around $2.4B, with the earliest reported quarter at $2.521B and the latest at $2.398B. While there are fluctuations in revenue and gross profit ratio, the consistent positive operating cash flow and stable debt levels suggest a reasonably healthy financial position for ALSN.

The company presents a moderately bullish investment profile based on its financial data. Revenue has shown positive growth, indicating increasing market demand or successful market penetration. The gross margin is healthy, suggesting efficient cost management in production or service delivery. A strong return on equity (ROE) signals effective utilization of shareholder investments to generate profit. The price-to-earnings (P/E) ratio suggests the stock is trading at a premium, but this could be justified by the company's growth prospects and profitability. A manageable debt-to-equity ratio indicates a reasonable level of financial leverage. The current ratio, being greater than 1, demonstrates the company's ability to cover short-term liabilities with its current assets, further solidifying its financial health. Overall, the combination of revenue growth, healthy profitability metrics, and a solid balance sheet makes the company an attractive investment for the next 12 months, although the elevated P/E ratio warrants careful monitoring.