Our $95 target price represents a ~8.5x EV/EBITDA multiple on our 2025E estimates, which is toward the higher end of the shares' 10-year historical trading range, which we think is justified given the company's enhanced margin profile.

Key risks include:

ZEV Adoption - Longer-term, commercial vehicle adoption of electric drivetrains could erode ALSN’s near-monopoly position in the CV automatic transmission market. While we expect the company to provide compelling drivetrain solutions if such a scenario occurs, it is unclear if ALSN will be able to preserve the current, highly favorable industry competitive dynamic, and as a result, the company’s high profit margin, and ROIC metrics.  

Int’l Market Penetration - International market penetration is an upside risk. Our estimates assume modest growth for ALSN's international on-highway sales, though we do see evidence of increased international penetration, particularly in China. Should international market adoption develop faster than expected our earnings estimates will probably be too low.

If the impact on the company from any of these factors proves to be greater/less than we anticipate, the shares may deviate from our target price.