- Price
- $111.80
- Fair value
- $145.00
- Discount
- 22.9%
- Uncertainty
- High
- LSEG rating
- 2.27
- Moat
- Narrow
- Next earnings
- 2026-11-03
- Next earnings is estimate
- Yes
- Company name
- Allison Transmission
- Sector
- Commercial vehicle drivetrains
- About
- Allison Transmission designs and makes fully automatic transmissions for medium-duty and heavy-duty commercial vehicles, such as trucks, buses and military vehicles. It sells to vehicle makers around the world, and it also sells parts and service. On January 1, 2026, Allison bought Dana's Off-Highway business for $2.732 billion. That business, now called Allison Off-Highway, makes axles, transmissions and drive systems for construction, mining and farm machines. In Q2 2026, the Allison Transmission business unit had record net sales of $860 million with an adjusted EBITDA margin of 37%, and Allison Off-Highway had net sales of $706 million with an adjusted EBITDA margin of 15%. Net sales were $3 billion in 2025, before the purchase.
- Thesis
- The market prices Allison for the risk of a downturn in truck demand and for the cost of its large purchase. North American truck sales move in cycles, and electric vehicles may need fewer conventional transmissions in the long term. The Off-Highway purchase added debt: total debt was $4.11 billion and net debt $3.72 billion at June 30, 2026. The new business also has a much lower margin than the legacy business, and its farm market has not recovered yet. Allison expects about $140 million of one-time costs in 2026 for the separation, integration and restructuring of Off-Highway. For the gap to close, three things must be true. Allison must reach its raised 2026 guidance of adjusted EBITDA of $1,465 million to $1,575 million and adjusted free cash flow of $745 million to $865 million. The Off-Highway margin must rise as Allison captures the planned synergies. Free cash flow must keep lowering net debt toward the company's leverage target. The Q3 2026 report, estimated for about November 3, 2026, is the next test. The 2027 guidance in February 2027 is the main test. If these checks pass, the gap can close over the next three to six quarters. The main reason it may not close is a fall in North American truck demand, which drives most of the legacy profit.
- Risks
- Demand for trucks and buses moves in cycles. North American on-highway trucks give much of the legacy profit. A downturn in truck orders lowers sales of Allison's high-margin transmissions.
The Off-Highway purchase raised debt to $4.11 billion at June 30, 2026. Its adjusted EBITDA margin was 15% in Q2 2026, compared with 37% for the legacy business. If integration costs are higher or synergies are lower than planned, the deal can lower returns.
Electric commercial vehicles may need fewer or simpler transmissions. Allison sells electric axles and hybrid systems, but a faster change to electric drives can reduce demand for its main products.
Off-Highway sells to construction, mining and farm markets. Allison said that the agriculture market has not improved yet. A longer farm downturn can delay the margin gains it expects.
- Balance sheet
- Cash: $399M
Debt: $4.1B
Net debt: $3.7B
Interest cover: 4.2×
Undrawn credit line: $995M, to January 2031
Debt due within 12 months: $20M
Allison funds its operations with term loans, senior notes and a revolving credit facility. At June 30, 2026, total debt was $4.11 billion and net debt was $3.72 billion, so cash was about $400 million. Debt rose in January 2026, when Allison added a $1.2 billion term loan due 2033 and drew on its revolver to pay for the Off-Highway business. By June 30, 2026, Allison had repaid the revolver, and $995 million was available under it until January 2, 2031. In June 2026, it refinanced about $508 million of term loans at a lower margin. Interest cover is operating income divided by net interest expense for the first half of 2026. Allison expects 2026 adjusted EBITDA of $1,465 million to $1,575 million and adjusted free cash flow of $745 million to $865 million. It paid a quarterly dividend of $0.29 per share and had $1,125 million left under its share repurchase program.
As of 2026-06-30.
- Checkpoints
- Nov 3, 2026 (estimate): Q3 2026 earnings: truck demand and Off-Highway margin. Pending. Watch: Results on track for the raised 2026 guidance and a higher Off-Highway margin than the 15% of Q2 pass; a cut to the guidance fails.
Feb 2027 (estimate): 2027 guidance: synergies and debt. Pending. Watch: 2027 guidance for higher adjusted EBITDA and lower net debt passes; guidance for lower adjusted EBITDA because of weaker truck demand fails.
- Recent events
- 2026-08-03: Allison reported Q2 2026 results. Net sales rose 92% to $1,566 million with the Off-Highway business. Diluted EPS was $2.15 and adjusted diluted EPS was $2.73, up 8%. Adjusted EBITDA rose 29% to $404 million, and adjusted free cash flow was a record $281 million. Allison repaid the remaining $150 million on its revolver and raised its 2026 guidance.
2026-06-11: Allison refinanced about $508 million of term loans due March 13, 2031, and lowered the interest margin on these loans by 0.25%.
2026-02-23: Allison reported 2025 results. Net sales were $3 billion, net income was $623 million and adjusted EBITDA was $1,130 million, or 37.5% of net sales. Defense net sales rose 26% to $267 million.
2026-01-02: Allison completed the purchase of Dana's Off-Highway business for $2.732 billion. To pay for it, Allison added a $1.2 billion term loan due 2033 and increased its revolving credit facility to $1 billion, now due January 2, 2031. Craig M. Price, the former head of Dana's Off-Highway business, became President of Allison Off-Highway.