Heavy duty drivetrain maker Allison Transmission Holdings set up early Wednesday for a unique stock chart maneuver called a breakaway gap, after delivering a hefty Q4 surprise late Tuesday.
The Indianapolis-based maker of gearboxes for over-the-road trucks as well as mining, construction and defense vehicles reported December-quarter earnings up 26% to $1.91 per share vs. views for $1.43. Revenue came in at $775 million for the quarter, an 8% gain and also above consensus estimates of $744 million.
Management lifted its full-year 2024 revenue outlook to between $3.05 billion and $3.15 billion — well above expectations for $3.03 billion.
Allison CEO David Graziosi noted a 180-basis point expansion of the company's earnings before interest, taxes depreciation and amortization margin, as well as adjusted free cash flow growth of 37%. Results were driven by "strong demand in our largest end markets," he said.
Allison competes most directly with Cummins and Dana.
Stock Chart Action: A Breakaway Gap
Allison shares bolted more than 20% higher in Wednesday's premarket session. If the move holds through the open, it sets the stage for a specific type of buying opportunity called a breakaway gap.
A breakaway gap is an unusually strong breakout from a sound base. It demonstrates powerful demand, so that the gap up move should not disqualify the stock for purchase. It just requires an adjustment in the buy zone.
With breakaway gaps, the goal is to buy as close to the opening price as possible.
Take a look at the stock on a five-minute chart with IBD MarketSmith, or your brokerage. If shares hold above the opening price, use the high of the first five-minute bar as your buy point. This compensates for the price gap.
Cummins shares moved up 2.2% in early trade. Dana was unchanged.
