Earnings season is fast approaching, and with it comes the usual whirlwind of numbers, narratives, and noise. As you know, safely navigating earnings season requires more than just skimming press releases or chasing flashy metrics.
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Free Most Attractive Stocks Pick: Allison Transmission Holdings Inc. (ALSN)
Allison Transmission (ALSN: $95/share) has grown revenue and net operating profit after tax (NOPAT) by 4% and 9% compounded annually since 2014, respectively. Allison Transmission’s NOPAT margin increased from 15% in 2014 to 25% in the TTM, while its invested capital turns rose from 0.5 to 0.8 over the same time. Rising NOPAT margins and invested capital turns and drive Allison Transmission’s return on invested capital (ROIC) from 8% in 2014 to 19% in the TTM.
Figure 1: Allison Transmission’s Revenue and NOPAT Since 2014
Sources: New Constructs, LLC and company filings
ALSN Is Undervalued
At its current price of $95/share, ALSN has a price-to-economic book value (PEBV) ratio of 0.9. This ratio means the market expects Allison Transmission’s NOPAT to permanently decline by 10% from TTM levels. This expectation seems overly pessimistic for a company that has grown NOPAT by 4% compounded annually over the last five years and 9% compounded annually over the last ten years.
Even if Allison Transmission’s NOPAT margin falls to 22% (equal to five-year average NOPAT margin compared to 26% in the TTM) and the company grows revenue by just 3% (below ten-year CAGR of 4%) compounded annually through 2034, the stock would be worth $127/share today – a 34% upside. In this scenario, Allison Transmission’s NOPAT would grow just 2% compounded annually through 2034. Contact us for the math behind this reverse DCF scenario.
Should Allison Transmission grow profits more in line with historical levels, the stock has even more upside.
Critical Details Found in Financial Filings by Our Robo-Analyst Technology
Below are specifics on the adjustments we made based on Robo-Analyst findings in Allison Transmission’s 10-K and 10-Q:
Income Statement: we made just under $150 million in adjustments, with a net effect of removing under $100 million in non-operating expense. Professional members can see all adjustments made to the company’s income statement on the GAAP Reconciliation tab on the Ratings page on our website.
Balance Sheet: we made over $2 billion in adjustments to calculate invested capital with a net decrease of over $600 million. One of the most notable adjustments was for deferred tax assets. Professional members can see all adjustments made to the company’s balance sheet on the GAAP Reconciliation tab on the Ratings page on our website.
Valuation: we made under $4 billion in adjustments to shareholder value, with a net decrease of over $2 billion. Apart from total debt, the most notable adjustment was for excess cash. Professional members can see all adjustments to the company’s valuation on the GAAP Reconciliation tab on the Ratings page on our website.
This article was originally published on July 11, 2025.
Disclosure: David Trainer, Kyle Guske II, and Hakan Salt receive no compensation to write about any specific stock, style, or theme.
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