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

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 |  About: Allison Transmission (ALSN), Includes: BAESY, CAT
by: Markus Aarnio

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.

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Insider selling during the last 30 days

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

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Sharon Dean VP April 1-17 60,600 Yes 11,195 shares + 50,958 options 49.4%
Edward Dyer VP April 2-17 13,752 Yes 15,443 shares + 12,308 options 33.1%
David Graziosi CFO April 11 24,039 Yes 145,884 shares + 271,696 options 5.4%
Lawrence Dewey CEO April 14 28,000 Yes 245,744 shares + 2,694,864 options 0.9%
Michael Headly SVP Mar 20-Apr 14 9,000 Yes 38,200 shares 19.1%
Richard Reynolds Director April 10 5,175 Yes 0 shares + 5,175 options 50.0%
David Parish SVP Mar 28-Apr 1 30,000 Yes 46,344 shares + 176,451 options 11.9%
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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.

Month Insider selling / shares Insider buying / shares
April 2014 165,366 0
March 2014 66,405 0
February 2014 29,008,183 0
January 2014 210,058 0
December 2013 12,741,273 0
November 2013 15,264,441 0
October 2013 61,479 0
September 2013 88,940 0
August 2013 23,940,382 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 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 growth 3%-6%
Adjusted EBITDA margin 32%-34%
Adjusted free cash flow $375-$425 million
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(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.

Company ALSN BAESY CAT
Market Cap: 5.69B 21.25B 65.59B
Employees: 2,700 84,600 118,501
Qtrly Rev Growth (yoy): 0.08 0.01 -0.10
Revenue: 1.93B 27.11B 55.66B
Gross Margin: 0.44 0.61 0.26
EBITDA: 613.90M 3.02B 8.72B
Operating Margin: 0.21 0.08 0.10
Net Income: 165.40M 270.03M 3.79B
EPS: 0.88 0.33 5.75
P/E: 35.22 79.82 17.88
PEG (5 yr expected): 3.09 -9.89 1.29
P/S: 2.82 0.79 1.18
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Allison Transmission has the highest P/S ratio among these three companies.

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

Company Insider buying / shares Insider selling / shares
BAESY N/A N/A
CAT 0 45,713
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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.

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.