Allison Transmission Holdings (NYSE: ALSN) and Federal Signal Corporation (NYSE:FSS) are both auto/tires/trucks companies, but which is the superior business? We will compare the two companies based on the strength of their analyst recommendations, risk, profitability, dividends, valuation, institutional ownership and earnings.

Profitability

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

Net Margins Return on Equity Return on Assets
Allison Transmission Holdings 16.34% 45.65% 8.34%
Federal Signal Corporation 5.30% 11.39% 5.64%

Insider and Institutional Ownership

81.7% of Federal Signal Corporation shares are owned by institutional investors. 7.9% of Allison Transmission Holdings shares are owned by company insiders. Comparatively, 4.2% of Federal Signal Corporation shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Risk and Volatility

Allison Transmission Holdings has a beta of 1.24, suggesting that its stock price is 24% more volatile than the S&P 500. Comparatively, Federal Signal Corporation has a beta of 1.32, suggesting that its stock price is 32% more volatile than the S&P 500.

Dividends

Allison Transmission Holdings pays an annual dividend of $0.60 per share and has a dividend yield of 1.4%. Federal Signal Corporation pays an annual dividend of $0.28 per share and has a dividend yield of 1.3%. Allison Transmission Holdings pays out 26.5% of its earnings in the form of a dividend. Federal Signal Corporation pays out 38.4% 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 increased its dividend for 4 consecutive years and Federal Signal Corporation has increased its dividend for 2 consecutive years. Allison Transmission Holdings is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a summary of current ratings and price targets for Allison Transmission Holdings and Federal Signal Corporation, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Allison Transmission Holdings 2 7 5 0 2.21
Federal Signal Corporation 0 0 2 0 3.00

Allison Transmission Holdings currently has a consensus target price of $43.70, suggesting a potential upside of 5.25%. Federal Signal Corporation has a consensus target price of $20.00, suggesting a potential downside of 4.26%. Given Allison Transmission Holdings’ higher probable upside, analysts clearly believe Allison Transmission Holdings is more favorable than Federal Signal Corporation.

Earnings and Valuation

This table compares Allison Transmission Holdings and Federal Signal Corporation’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Allison Transmission Holdings $1.84 billion 3.20 $214.90 million $2.26 18.37
Federal Signal Corporation $707.90 million 1.77 $43.80 million $0.73 28.62

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

Summary

Allison Transmission Holdings beats Federal Signal Corporation on 13 of the 17 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 Federal Signal Corporation

Federal Signal Corporation designs, manufactures and supplies a suite of products and integrated solutions for municipal, governmental, industrial and commercial customers. The Company’s segments include the Environmental Solutions Group and the Safety and Security Systems Group. Its Environmental Solutions Group manufactures and supplies a range of street sweeper vehicles, sewer cleaner and vacuum loader trucks, hydro-excavation trucks and waterblasting equipment. The products are sold to both municipal and industrial customers under the Elgin, Vactor, Guzzler and Jetstream brand names. Safety and Security Systems is a manufacturer and supplier of systems and products that law enforcement, fire rescue, emergency medical services, campuses military facilities and industrial sites use to protect people and property. It offers systems for campus and community alerting, emergency vehicles, first responder interoperable communications and industrial communications, among others.

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