- Acquisition Expansion: Acquired Dana's Off-Highway Drive & Motion Systems, adding 14,000 employees in 25 countries with $120M annual synergy target.
- Margin Improvement: Full-year 2025 adjusted EBITDA margin rose 140 bps to 37.5%, despite 7% revenue decline due to global trade and economic headwinds.
- Defense Revenue Growth: Achieved $100M incremental annual revenue in defense markets, driven by international demand and strategic partnerships.
- Synergy Realization: Targeting $120M in annual run-rate synergies by 2026, focused on procurement, vertical integration, and best-cost manufacturing.
- 2026 Guidance: Projects consolidated net sales of $5.575B–$5.925B and adjusted EBITDA of $1.365B–$1.515B, with EBITDA margin guidance of 27%–29% post-synergy capture.
Financial Performance and Guidance
The company's adjusted EBITDA margin guidance assumes continued softness in the North America On-Highway end market. Despite the challenges, Allison Transmission is confident in its ability to generate substantial and sustainable free cash flow as a combined business, with a robust cash generation ensuring its capital allocation priorities remain intact. The company's guidance for 2026 suggests a consolidated adjusted EBITDA margin in the range of 24.5% to 25.6%, which is slightly lower than the current margin.
Valuation and Metrics
Using the current price, the stock trades at a P/E Ratio of 16.46, P/B Ratio of 5.49, and EV/EBITDA of 11.76. The ROE is 34.97%, and the ROIC is 13.99%. The Net Debt / EBITDA ratio is 1.42, indicating a manageable debt level. The Free Cash Flow Yield is 7.8%, which is relatively attractive. These metrics suggest that the stock is reasonably valued, but the market is expecting a certain level of growth and profitability.
Synergies and Cost Savings
The acquisition of Dana's Off-Highway Drive & Motion Systems business is expected to bring $120 million of annual run-rate synergies over the next few years. The company is confident in achieving these cost synergies and is taking a thoughtful and measured approach to implementation. As Dave Graziosi mentioned, "We're confident in achieving the $120 million annual run rate in cost synergies." The synergies will likely contribute to the company's profitability and help offset the impact of tariffs and inflationary pressure.
Outlook and End Market Guidance
The company's guidance assumes no recovery for Class 8 trucks and a decline in North America On-Highway due to soft medium-duty activity. However, the defense segment is expected to continue growing, particularly outside North America. The Off-Highway segment is subject to various end markets, including construction, material handling, and agriculture, which are facing challenges. The company's prudent approach to guidance reflects the uncertainty in these end markets.