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

Profitability

This table compares Allison Transmission Holdings and AGCO Corporation’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%
AGCO Corporation 2.40% 6.84% 2.67%

Insider & Institutional Ownership

80.7% of AGCO Corporation shares are held by institutional investors. 7.9% of Allison Transmission Holdings shares are held by company insiders. Comparatively, 16.6% of AGCO Corporation shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Dividends

Allison Transmission Holdings pays an annual dividend of $0.60 per share and has a dividend yield of 1.6%. AGCO Corporation pays an annual dividend of $0.56 per share and has a dividend yield of 0.7%. Allison Transmission Holdings pays out 33.7% of its earnings in the form of a dividend. AGCO Corporation pays out 24.6% 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 and AGCO Corporation has raised its dividend for 3 consecutive years. Allison Transmission Holdings is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility & Risk

Allison Transmission Holdings has a beta of 1.2, indicating that its stock price is 20% more volatile than the S&P 500. Comparatively, AGCO Corporation has a beta of 0.86, indicating that its stock price is 14% less volatile than the S&P 500.

Valuation and Earnings

This table compares Allison Transmission Holdings and AGCO Corporation’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Allison Transmission Holdings $1.98 billion 2.77 $707.40 million $1.78 20.68
AGCO Corporation $7.65 billion 0.78 $604.20 million $2.28 33.02

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

Analyst Ratings

This is a breakdown of current ratings and target prices for Allison Transmission Holdings and AGCO Corporation, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Allison Transmission Holdings 2 6 4 0 2.17
AGCO Corporation 1 11 4 0 2.19

Allison Transmission Holdings presently has a consensus price target of $39.63, suggesting a potential upside of 7.65%. AGCO Corporation has a consensus price target of $67.75, suggesting a potential downside of 10.01%. Given Allison Transmission Holdings’ higher possible upside, analysts clearly believe Allison Transmission Holdings is more favorable than AGCO Corporation.

Summary

Allison Transmission Holdings beats AGCO Corporation on 9 of the 16 factors compared between the two stocks.

Allison Transmission Holdings Company Profile

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.

AGCO Corporation Company Profile

AGCO Corporation is a manufacturer and distributor of agricultural equipment and related replacement parts. The Company sells a range of agricultural equipment, including tractors, combines, self-propelled sprayers, hay tools, forage equipment, seeding and tillage equipment, implements, and grain storage and protein production systems. The Company’s segments are North America, South America, Europe/Middle East, and Asia/Pacific/Africa. The Company’s products are marketed under various brands, including Challenger, Fendt, GSI, Massey Ferguson and Valtra. As of December 31, 2016, the Company distributed its products through over 3,000 independent dealers and distributors in more than 150 countries. In addition, the Company also provides retail and wholesale financing through its finance joint ventures with Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank). The Company’s AGCO Power engines division produces diesel engines, gears and generating sets.

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