Freedom estimates Allison Transmission shares have 27% upside potential

The acquisition of a Dana division expanded Allison Transmission (ALSN)’s capabilities in the construction, agricultural, and mining equipment market. Freedom Broker analysts Kanat Yertai and Dmitry Pozdnyakov expect business consolidation, cost reductions, and new defense orders to support the company’s earnings. In a report dated October 1, they initiated coverage of the stock with a “Buy” rating and a $144 target price. This implies upside potential of about 27.1% relative to the $113.26 price cited in the report.

Allison manufactures automatic transmissions for commercial vehicles and military equipment. The company holds strong positions in North America, primarily in the bus and specialty truck segments. A large installed base of vehicles in operation supports demand for spare parts and service.

The Dana business purchase nearly doubled the company’s scale

In January 2026, Allison completed the acquisition of Dana’s Off-Highway Drive & Motion Systems business for about $2.7 bn. It produces axles, gearboxes, and other components for off-highway industrial equipment. After the deal, the combined company’s footprint spans 29 countries.

According to Freedom’s forecast, Allison’s revenue in 2026 will rise by 97.4% to $5.94 bn, mainly due to consolidating the acquired business into its financial statements. In 2027, the analysts expect a further 3.8% increase to $6.17 bn.

Management expects to achieve about $120 mn in annual benefits from business consolidation through cost cuts and efficiency gains. By the end of 2027, the company plans to realize about 40% of this amount. For Freedom, executing the plan and improving the profitability of the new division are among the key drivers of the stock’s value growth.

The new business boosts sales but reduces overall profitability

According to Allison’s report for Q2 2026, group revenue totaled $1.57 bn. Of this amount, $706 mn was generated by the acquired division.

At the same time, adjusted EBITDA margin for Allison’s legacy business reached 37%, while the acquired Off-Highway division, which produces components for construction, agricultural, and mining equipment, posted 15%. The metric reflects the ratio of earnings before interest, taxes, and depreciation and amortization, adjusted for certain items, to revenue. The lower profitability of the new division explains why the company’s increased scale has so far been accompanied by a decline in overall profitability.

Freedom expects integration and cost savings to gradually improve the group’s performance. According to the analysts’ calculations, earnings per share will increase from $8.09 in 2026 to $10.10 in 2027 and $11.73 in 2028.

Defense orders and international sales will support growth

Analysts also link additional opportunities to orders for transmissions for military vehicles. In June 2026, Allison received a $250 mn contract for CV90 MkIV infantry fighting vehicles manufactured by BAE Systems Hägglunds. Deliveries under the contract will begin in 2028.

Starting in 2027, the company also plans to supply transmissions for the French PL6T army truck program, designed for 7,000 vehicles over more than ten years, and for EAGLE V armored vehicles produced by GDELS. The latter program предусматривает about 3,000 vehicles with an option to order another 2,000. Freedom estimates these contracts provide the company with orders for several years ahead.

Outside North America, growth may be driven by broader adoption of automatic transmissions in commercial transport. Freedom estimates that strong free cash flow—funds remaining after capital expenditures—will also enable the company to reduce debt after the Dana acquisition.

What risks Freedom takes into account

The main risks are associated with a decline in demand for commercial transport, construction, and agricultural equipment. Delays in integration or weaker Off-Highway profitability could reduce the expected deal benefits.

In the long term, the shift of transport to electric powertrains could limit demand for traditional transmissions.

The $144 target price is calculated using two equally weighted approaches: forecasting future cash flows and comparing Allison’s valuation with peer companies. Freedom believes that executing the integration plan and earnings growth could narrow the current discount of the stock relative to competitors.

This is not an individual investment recommendation.