![]() ![]() Nonetheless, advancements in the electrification of the truck fleet have been limited at most. ALSN's current valuation reflects impending doom coming from the electrification of the trucking fleet. Concerns regarding the widespread adoption of electric vehicles have been overblown.Using Helmer's 7 Powers framework, ALSN also benefits from high switching costs (customers are unlikely to switch from their automatic transmissions, and ALSN is the preferred option in many models) and process power. ALSN holds a dominant position in numerous segments, rendering the possibility of potential competition very unlikely. Given the small size of the market, scale assumes a critical role in mitigating the expenses associated with research and SG&A costs.This provides a high level of predictability to the business's top-line. However, in its North America (NA) on-highway segment, municipalities constitute one of the primary customers of ALSN, accounting for approximately 30-40% of the segment's sales. Trucking is the primary end market for ALSN, and it is a fragmented and cyclical industry.The main point of the thesis can be summarised as follows: Moreover, the manufacturing of automatic transmissions constitutes a specialized and very profitable industry, in which essentially only two players compete on a global scale. End-users, specifically truck drivers, encounter significant barriers to switching (once they switch to automatic transmissions, they are unlikely to revert to manual), making transmissions a critical element of their daily operations. Allison possesses unparalleled expertise in the design and manufacturing of fully automatic transmissions, which are a highly engineered piece of hardware where performance and dependability are of utmost importance. ALSN's end markets include refuse management, construction, fire, school and transit buses, motor homes, energy, and mining. IntroductionĪllison Transmission (NYSE: NYSE: ALSN ) is a US manufacturer of fully automatic transmissions for medium-and heavy-duty commercial vehicles, and defense vehicles. All figures in US dollars, unless otherwise noted. These pieces will provide in-depth analysis of business models, financials and valuations. This is an article part of an ongoing primer series on great and undercovered companies at attractive valuations. I estimate a target price range of $60-$70, implying equity returns of 12-15% at perpetuity. Valuation is attractive: at $45 per share, the company has an EV of roughly $7.9bn., which implies EV/NOA ’22 and EV/NOI LTM multiples of 2x and 9.8x, respectively.Advancements in the electrification of trucks have been limited at most, and will be modest in the coming decades due to several structural impediments. Fears regarding the adoption of electric vehicles have been exaggerated. ![]() Allison enjoys strong scale economies and also benefits from high switching costs, as customers are unlikely to switch from automatic transmissions.The manufacturing of automatic transmissions constitutes a specialized and very profitable industry, in which essentially only two players compete on a global scale. ![]()
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