Allison Transmission Holdings (NYSE: ALSN) and PACCAR (NASDAQ:PCAR) are both mid-cap auto/tires/trucks companies, but which is the superior investment? We will contrast the two businesses based on the strength of their earnings, risk, valuation, institutional ownership, profitability, dividends and analyst recommendations.

Dividends

Allison Transmission Holdings pays an annual dividend of $0.60 per share and has a dividend yield of 1.7%. PACCAR pays an annual dividend of $1.00 per share and has a dividend yield of 1.5%. Allison Transmission Holdings pays out 33.7% of its earnings in the form of a dividend. PACCAR pays out 26.7% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Allison Transmission Holdings has raised its dividend for 4 consecutive years. Allison Transmission Holdings is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Allison Transmission Holdings and PACCAR’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Allison Transmission Holdings 14.32% 31.27% 6.77%
PACCAR 7.77% 18.61% 6.23%

Earnings and Valuation

This table compares Allison Transmission Holdings and PACCAR’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Allison Transmission Holdings $1.98 billion 2.63 $707.40 million $1.78 19.69
PACCAR $17.26 billion 1.34 $2.36 billion $3.74 17.61

PACCAR has higher revenue and earnings than Allison Transmission Holdings. PACCAR is trading at a lower price-to-earnings ratio than Allison Transmission Holdings, indicating that it is currently the more affordable of the two stocks.

Institutional & Insider Ownership

62.7% of PACCAR shares are held by institutional investors. 7.9% of Allison Transmission Holdings shares are held by company insiders. Comparatively, 2.6% of PACCAR shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Risk and Volatility

Allison Transmission Holdings has a beta of 1.22, suggesting that its share price is 22% more volatile than the S&P 500. Comparatively, PACCAR has a beta of 1.16, suggesting that its share price is 16% more volatile than the S&P 500.

Analyst Ratings

This is a breakdown of recent recommendations for Allison Transmission Holdings and PACCAR, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Allison Transmission Holdings 1 6 4 1 2.42
PACCAR 1 8 9 0 2.44

Allison Transmission Holdings currently has a consensus target price of $40.38, indicating a potential upside of 15.23%. PACCAR has a consensus target price of $72.20, indicating a potential upside of 9.63%. Given Allison Transmission Holdings’ higher probable upside, analysts plainly believe Allison Transmission Holdings is more favorable than PACCAR.

Summary

Allison Transmission Holdings beats PACCAR on 11 of the 18 factors compared between the two stocks.

About Allison Transmission Holdings

Allison Transmission Holdings, Inc. and its subsidiaries design and manufacture commercial and defense fully-automatic transmissions. The Company manufactures fully-automatic transmissions for medium- and heavy-duty commercial vehicles, and medium-and heavy-tactical United States defense vehicles. The Company’s transmissions are used in a range of applications, including on-highway trucks (distribution, refuse, construction, fire and emergency), buses (primarily school, transit and hybrid-transit), motorhomes, off-highway vehicles and equipment (energy, mining and construction) and defense vehicles (wheeled and tracked). The Company’s transmissions are sold under the Allison Transmission brand name and remanufactured transmissions are sold under the ReTran brand name. The Company has developed over 100 different models that were used in more than 2,500 different vehicle configurations and were compatible with over 500 combinations of engines, as of December 31, 2016.

About PACCAR

PACCAR Inc (PACCAR) is a technology company. The Company’s segments include Truck, Parts and Financial Services. The Truck segment includes the design, manufacture and distribution of light-, medium- and heavy-duty commercial trucks. The Company’s trucks are marketed under the Kenworth, Peterbilt and DAF nameplates. It also manufactures engines, primarily for use in the Company’s trucks, at its facilities in Columbus, Mississippi; Eindhoven, the Netherlands, and Ponta Grossa, Brazil. The Parts segment includes the distribution of aftermarket parts for trucks and related commercial vehicles. The Financial Services segment includes finance and leasing products and services provided to customers and dealers. Its Other business includes the manufacturing and marketing of industrial winches. The Company operates in Australia and Brazil and sells trucks and parts to customers in Asia, Africa, Middle East and South America.

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