Jeff Ubben is bullish on Allison Transmission Holdings Inc (NYSE:ALSN) and recently his fund, ValueAct Partners, boosted its position in the company. As a new filing with the Securities and Exchange Commission showed, ValueAct acquired a total of 550,000 shares of Allison Transmission, raising its position to around 18.58 million shares. The shares have been acquired in eight transactions, the average price amounting to $28.31 per unit. Following the increase, ValueAct owns 10.5% of Allison Transmission’s common stock.
ValueAct has not disclosed the nature of the stake, although it’s most likely a passive position, since ValueAct has been holding a significant stake in Allison for over a year and has not revealed any activist moves regarding the company. And so far, Allison Transmission Holdings Inc (NYSE:ALSN) has been performing pretty well.
The company produces and sells commercial and military fully-automatic transmissions. With the auto parts industry growing, Allison has also showed a solid performance, with its stock gaining around 3.7% since the beginning of the year, versus the industry return of around 9%, and outrunning most of its peers in the industry.
On the financial side, Allison Transmission Holdings Inc (NYSE:ALSN) has also been reporting a good performance, with its revenue, EBITDA and net income posting single digits growth over the last several quarters. For the second quarter of 2013, the revenue amounted to approximatelly $535 million, up by 4% on the year, while its EBITDA and EPS grew to $180 million and $0.31 respectively, from $165 million and $0.26 a year ago. Analysts expect further growth during this year, with the EPS consensus standing at around $2.35, versus reported $1.85 a year ago.
Among the midcap auto parts companies, Allison Transmission Holdings Inc (NYSE:ALSN) is priced cheaper in comparison to some other peers, such as Visteon Corp (NYSE:VC), or Lear Corporation (NYSE:LEA), which, however, returned around 20% and 11% year-to-date. Moreover, it trails a P/E of 26.80, which is one of the highest among its peers, and is significantly above the industry average of 18.60.
Earlier in September, Zacks upgraded Allison Transmission Holdings Inc (NYSE:ALSN)’s rating to ‘Outperform’ from ‘Neutral’ and setting a target price of $32.70, which represents a significant premium on $28.50, the current price of the stock.
Among the investors of Allison Transmission Holdings Inc (NYSE:ALSN) that we track at Insider Monkey, the vast majority boosted their exposure to the company. For example, David E. Shaw increased his stake by 27% during the second quarter and owns 9.66 million shares as of the end of June. Lee Ainslie of Maverick Capital placed a big bet on Allison during the same period, opening a position that contains 6.37 million shares and amasses 2.84% of Maverick’s equity portfolio.
Nevertheless, despite the fact that ValueAct has not gone activist on Allison, there is a reason to believe that it might soon do so, since it would be in line with its strategy. Jeff Ubben prefers to amass significant positions in companies that he considers to be undervalued and then discusses with the board offering long-term growth strategies. Given that ValueAct has been one of the best performing hedge funds for several years (last year returned over 29%), it’s bet on Allison seems to be more interesting that it looks at the first sight.