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

Volatility & Risk

PACCAR has a beta of 1.14, meaning that its share price is 14% more volatile than the S&P 500. Comparatively, Allison Transmission Holdings has a beta of 1.18, meaning that its share price is 18% more volatile than the S&P 500.

Dividends

PACCAR pays an annual dividend of $1.00 per share and has a dividend yield of 1.6%. Allison Transmission Holdings pays an annual dividend of $0.60 per share and has a dividend yield of 1.7%. PACCAR pays out 26.7% of its earnings in the form of a dividend. Allison Transmission Holdings pays out 33.7% 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. PACCAR has raised its dividend for 4 consecutive years.

Profitability

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

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

Earnings and Valuation

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

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
PACCAR $17.26 billion 1.31 $2.36 billion $3.74 17.22
Allison Transmission Holdings $1.98 billion 2.66 $707.40 million $1.78 19.89

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.

Insider and Institutional Ownership

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

Analyst Recommendations

This is a breakdown of current ratings and recommmendations for PACCAR and Allison Transmission Holdings, as provided by MarketBeat.com.

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

PACCAR currently has a consensus target price of $71.87, indicating a potential upside of 11.59%. Allison Transmission Holdings has a consensus target price of $41.13, indicating a potential upside of 16.17%. 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 10 of the 18 factors compared between the two stocks.

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.

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.

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