Allison Transmission's Highest-Margin Segment Is 'Likely To Slow,' BofA Says In Downgrade

Slowing growth in Allison Transmission Holdings Inc. (NYSE: ALSN)’s bus and fracking parts segments could limit the company’s future upside, according to Bank of America Merrill Lynch.

The Analyst

BofA's Ross Gilardi downgraded Allison Transmision from Buy to Neutral and lowered the price target from $52 to $48.

The Thesis

Gilardi described Allison as a “best-in-class operator [that] is likely to participate in an evolving truck market” in a Thursday note. (See the analyst’s track record here.)

Allison is likely to experience strong growth in its "off-highway" businesses — oil and gas pressure pumping — and Class 8 truck production in the next year, the analyst said. 

But some of Indianapolis-based Allison's business segments are “near peak” and may struggle to find additional upside, Gilardi said. 

“ALSN’s Parts business, its highest-margin segment, has not reported double-digit growth in back-to-back years and is likely to slow from its robust pace," Gilardi said, adding that he only sees a modest upside to Allison shares going forward. 

Price Action

At the time of publication, shares of ALSN were trading down 3.6 percent at $41.75.

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Photo courtesy of Allison Transmission.