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Allison Transmission Holdings, Inc. (ALSN) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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Allison Transmission Holdings, Inc. (ALSN)

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Intrinsic Value (DCF)

Current$111.55
→
Intrinsic$135.52
+21%
$86.70$135.52$228.30
Market implies 7% growth for 5 years
ALSN shows 21% potential upside using 11% growth — reasonable if fundamentals hold.
At $112, the market prices in only 7% growth — below historical 11%, suggesting low expectations.
Range: Bear $87 → Bull $228. Current price implies expectations below the base case, but well above the bear case.
Discount ↓Growth →7%9%11%13%
8%$166$182$200$218
10%$112$123$136$148
12%$83$91$100$110
14%$64$70$78$85

Bull Case

  • Bull case ($228) offers 105% upside at 13% growth, 9% discount
  • 18% margin of safety vs. base case estimate
  • Market-implied growth (7%) ≤ historical CAGR (11%)

Bear Case

  • Bear case ($87) implies 22% downside at 9% growth, 12% discount
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5-Year Free Cash Flow Projection

Year 1$731.02M
Year 2$812.15M
Year 3$902.27M
Year 4$1.00B
Year 5$1.11B
Terminal$16.39B

📐 Model Inputs

Growth Rate11.1%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate10.0%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Free Cash Flow$658.00MTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. See FAQ below for full methodology.

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Frequently Asked Questions

Is ALSN stock undervalued or overvalued?
🟢 UNDERVALUED

ALSN trades at $111.55 vs. our DCF-derived intrinsic value of $135.52, implying +33% upside. At a 10.0% WACC and 11.1% projected FCF growth, the market appears to be underpricing the present value of ALSN's future cash flows. The bear case ($90.04) still suggests upside, providing margin of safety.

What is ALSN's intrinsic value?

Using a 5-year DCF model: Base FCF of $658M, projected at 11.1% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 10.0% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $1.64B net debt and dividing by 0.09B shares: Bear $90.04 | Base $135.52 | Bull $198.04. Current price $111.55 implies +33% to base case.

How is ALSN's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 11.1% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=10.0%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($13.56B).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 20.6x.