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Summary

  • Seven insiders sold Allison Transmission stock within one month.
  • The stock was not purchased by any insiders in the month of intensive selling.
  • Five of these seven insiders decreased their holdings by more than 10%.

Allison Transmission Holdings (NYSE:ALSN) is a manufacturer of fully-automatic transmissions for medium- and heavy-duty commercial vehicles and medium- and heavy-tactical U.S. defense vehicles.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Sharon DeanVPApril 1-1760,600Yes11,195 shares + 50,958 options49.4%
Edward DyerVPApril 2-1713,752Yes15,443 shares + 12,308 options33.1%
David GraziosiCFOApril 1124,039Yes145,884 shares + 271,696 options5.4%
Lawrence DeweyCEOApril 1428,000Yes245,744 shares + 2,694,864 options0.9%
Michael HeadlySVPMar 20-Apr 149,000Yes38,200 shares19.1%
Richard ReynoldsDirectorApril 105,175Yes0 shares + 5,175 options50.0%
David ParishSVPMar 28-Apr 130,000Yes46,344 shares + 176,451 options11.9%

There have been 170,566 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 plan.

SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.

For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.

In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
April 2014165,3660
March 201466,4050
February 201429,008,1830
January 2014210,0580
December 201312,741,2730
November 201315,264,4410
October 201361,4790
September 201388,9400
August 201323,940,3820
July 2013111,3560
June 201336,6610
May 201351,1900
April 2013105,7460
March 201372,7890
February 2013344,3690
January 2013246,2660

There have been 82,514,904 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

Allison Transmission reported the first-quarter financial results on April 16 with the following highlights:

Revenue$493.6 million
Net income$52.1 million
Cash$159.9 million
Debt$2.7 billion

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(Source: Earnings presentation)

Outlook

Allison Transmission's 2014 guidance is as follows:

Revenue growth3%-6%
Adjusted EBITDA margin32%-34%
Adjusted free cash flow$375-$425 million

(click to enlarge)

(Source: Earnings presentation)

Although Allison Transmission did not provide specific second quarter 2014 guidance, Allison expects second quarter net sales to be higher than the same period in 2013.

Competition

Allison Transmission's competitors include BAE Systems (OTCPK:BAESY), and Caterpillar (NYSE:CAT). Here is a table comparing these companies.

CompanyALSNBAESYCAT
Market Cap:5.69B21.25B65.59B
Employees:2,70084,600118,501
Qtrly Rev Growth (yoy):0.080.01-0.10
Revenue:1.93B27.11B55.66B
Gross Margin:0.440.610.26
EBITDA:613.90M3.02B8.72B
Operating Margin:0.210.080.10
Net Income:165.40M270.03M3.79B
EPS:0.880.335.75
P/E:35.2279.8217.88
PEG (5 yr expected):3.09-9.891.29
P/S:2.820.791.18

Allison Transmission has the highest P/S ratio among these three companies.

Here is a table of these competitors' insider activities this year.

CompanyInsider buying / sharesInsider selling / shares
BAESYN/AN/A
CAT045,713

Only Allison Transmission has seen intensive insider selling during the last 30 days.

Conclusion

There have been seven different insiders selling Allison Transmission, and there have not been any insiders buying Allison Transmission during the last 30 days. Five of these seven insiders decreased their holdings by more than 10%. Allison Transmission has an insider ownership of 40.72%.

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

Source: Allison Transmission: 7 Different Insiders Have Sold Shares During The Last 30 Days