Insiders Are Selling Allison Transmission Holdings

Oct.16.13 | About: Allison Transmission (ALSN)

In this article, I will feature one consumer goods company that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

Allison Transmission Holdings (NYSE:ALSN) engages in the design and manufacture of commercial and military fully-automatic transmissions and hybrid-propulsion systems for transit buses.

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Insider selling during the last 30 days

Here is a table of Allison's insider-trading activity during the last 30 days by insider.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Eric Scroggins VP Sep 17-27 55,940 Yes 16,747 shares + 17,858 options 61.8%
James Wanaselja VP Sep 18-19 23,000 Yes 24,611 shares + 88,189 options 16.9%
Sharon Dean VP Sep 17 10,000 Yes 11,195 shares + 72,575 options 10.7%
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There have been 88,940 shares sold by insiders during the last 30 days. More details about the Rule 10b5-1 trading plan can be found from this link.

Insider selling by calendar month

Here is a table of Allison's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
September 2013 88,940 0
August 2013 12,037,882 0
July 2013 111,356 0
June 2013 36,661 0
May 2013 51,190 0
April 2013 105,746 0
March 2013 72,789 0
February 2013 344,369 0
January 2013 246,266 0
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There have been 13,095,199 shares sold and there have been zero shares purchased by insiders this year.

Financials

Allison reported the second-quarter financial results on July 29 with the following highlights:

Revenue $512.1 million
Net income $50.5 million
Cash $227.4 million
Debt $2.8 billion
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Outlook

Allison's full year 2013 guidance includes adjusted EBITDA excluding technology-related license expenses in the range of $630 to $660 million and adjusted free cash flow in the range of $325 to $375 million. Allison expects to achieve these levels on net sales for full year 2013 in the range of $1,920 to $1,960 million.

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Competition

Allison's competitors include Caterpillar (NYSE:CAT). Here is a table comparing these two companies.

Company ALSN CAT
Market Cap: 4.63B 55.53B
Employees: 2,800 122,402
Qtrly Rev Growth (yoy): -0.09 -0.16
Revenue: 1.95B 60.35B
Gross Margin: 0.43 0.26
EBITDA: 577.30M 9.50B
Operating Margin: 0.18 0.11
Net Income: 121.40M 4.24B
EPS: 0.64 6.34
P/E: 38.63 13.52
PEG (5 yr expected): 3.37 0.69
P/S: 2.38 0.92
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Allison is trading at a higher P/S ratio than Caterpillar. Caterpillar has seen four insider sell transactions this year. Only Allison has seen intensive insider selling during the past 30 days.

Conclusion

There have been three different insiders selling Allison and there have not been any insiders buying Allison during the past 30 days. All three of these insiders decreased their holdings by more than 10%. Allison has an insider ownership of 0.20%.

Allison is trading at a P/E ratio of 38.63 and a forward P/E ratio of 21.16. The company has a book value of $7.69 per share and the stock has a dividend yield of 1.93%.

Before entering short Allison, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are relatively high P/S ratio and the intensive insider selling activity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.