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Why Allison Transmission Stock Popped 10%

By Rich Smith – Updated Jul 31, 2018 at 1:24PM

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Earnings beat estimates in a big way.

What happened

Allison Transmission (ALSN -0.11%) stock is trading up 10.1% as of 12:50 p.m. EDT, after the company reported second-quarter sales and earnings that quite simply beat Wall Street's expectations with a stick.

Allison reported $1.29 per share in profit on sales of $711 million, far more than the $1.00 in earnings on sales of only $652.4 million that analysts had expected.

Automatic-transmission gearshift

Allison Transmission is thriving in a world that's forgotten how to drive stick. Image source: Getty Images.

So what

Allison's quarterly sales surged 23% year over year, making for a record quarter, and earnings were up 83%.

Sales of "off-highway" automatic transmissions -- Allison's smallest business area -- were the hero of this quarter, surging 140% outside North America, and 520% within North America. However, sales were actually up across the board and in every reported business segment.

Even better, profit margin jumped 440 basis points to 34.9%.

Now what

These results gave Allison confidence enough to raise its guidance for the rest of this year. As of today, Allison anticipates ending 2018 with sales up 15% to 18% over last year (so, between $2.6 billion and $2.7 billion), and with net profit growing from 13% to 19% (from $570 million to $600 million).

At today's market capitalization of $6.4 billion, that values Allison stock at less than 11 times the top range of this year's guidance, and no more than 11.2 times the low end. Not bad for a stock that just turned in 83% earnings growth.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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