Allison Transmission Holdings, Inc. (ALSN): A Bull Case Theory

We came across a bullish thesis on Allison Transmission Holdings, Inc. on Divergent Capital’s Substack. In this article, we will summarize the bulls’ thesis on ALSN. Allison Transmission Holdings, Inc.'s share was trading at $89.46 as of November 26th. ALSN’s trailing and forward P/E were 10.98 and 9.19 respectively according to Yahoo Finance.

Allison Transmission Holdings, Inc., together with its subsidiaries, designs, manufactures, and sells fully automatic transmissions for medium- and heavy-duty commercial vehicles and medium- and heavy-tactical U.S. defense vehicles, and electrified propulsion systems worldwide. ALSN acquisition of Dana Inc.’s Off-Highway business for $2.73 billion creates a compelling, de-risked opportunity with meaningful upside as the deal is fully funded through new debt and cash on hand and is immediately free-cash-flow accretive.

The transaction adds roughly $288 million of incremental annual FCF, lifting pro forma FCF to $987 million and driving ALSN’s valuation to just ~7.1× pro forma FCF—far below the peer median of 20.8× despite superior pro forma operating margins of ~20.6% and pre-tax ROTA of ~26%. With all regulatory approvals secured, no requirement for shareholder consent, and permanent financing already arranged—including a $500 million notes offering and a $1.2 billion term loan facility backstopped by a fully committed $2 billion bridge loan—the deal carries near-zero regulatory or financing risk. Closing is expected by late 2025, eliminating the key uncertainties tied to the $120 million break fee, which can no longer be triggered given approvals are in hand.

Although the acquisition raises long-term debt by about $2 billion, ALSN maintains strong coverage ratios, with EBITDA/interest of ~8× and FCF/interest of ~4.8×, supported by the transaction’s highly accretive cash flow profile. The market has yet to reflect these dynamics, and the stock’s re-rating is expected once combined financials print in Q4 2025 or Q1 2026. Even a partial multiple normalization to 8×–12× FCF implies 12%–70%+ upside, with triple-digit potential at peer-median levels. Downside appears limited given the stock’s decline from ~$102 pre-announcement and the removal of break-fee and deal-execution risks, creating a favorable skew for investors ahead of closing.

Previously we covered a bullish thesis on Gentex Corporation by The Antifragile Investor in January 2025, which highlighted the company’s leadership in electrochromic mirrors, diversification into aviation and smart home safety, and strong financial fundamentals. The company’s stock price has depreciated approximately by 17.94% since our coverage. This is because the thesis didn’t fully play out. The thesis still stands as Gentex’s innovation pipeline and global partnerships support long-term growth. The Antifragile Investor shares an identical view and emphasizes the same strengths.

Allison Transmission Holdings, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 37 hedge fund portfolios held ALSN at the end of the second quarter which was 33 in the previous quarter. While we acknowledge the potential of ALSN as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.