Kepler Cheuvreux downgrades Alstom, flags execution risks and weak cash

Investing.com -- Kepler Cheuvreux downgraded Alstom to “reduce” from “hold” and cut its 12-month target price to €25 from €27.50, citing persistent execution risks and weak cash performance, sending shares down over 3% on Tuesday.

The downgrade followed a reduction in earnings estimates and a reassessment of Alstom’s financial profile. Kepler Cheuvreux said it cut its adjusted EBIT and adjusted EPS forecasts by between 11% and 18%, reflecting what it described as Alstom’s ongoing economic position.

The target price reduction represents a 9.1% cut. At the time of publication, Alstom shares were trading at €26.78, implying a downside of 6.6% relative to the revised target price.

The brokerage said execution risks continue across Alstom’s project portfolio and highlighted weak and unpredictable profit-to-cash conversion.

Despite record order intake in the third quarter of fiscal 2025-26, management did not change second-half free cash flow guidance, which Kepler Cheuvreux said implied lower pre-payment levels than expected.

Kepler Cheuvreux also pointed to pressures from the ramp-up of early-stage rolling stock projects, normalization of joint-venture contributions and persistent capacity underutilization in certain countries. These factors, the brokerage said, could delay the timing of expected margin recovery.

The analysts said Alstom’s adjusted EBIT and net income figures overstate the group’s underlying economic position.

As part of its revision, Kepler Cheuvreux adjusted its definition of adjusted EBIT to exclude joint ventures and associates and amended financing charges to reflect what it said was an unsustainably low level of coupons being charged to the profit and loss account.

Kepler Cheuvreux said Alstom’s rail markets offer stable volumes but are characterized by intense competition and demanding customers, with project complexity limiting industrialization benefits and increasing execution risk.

The brokerage said Alstom shares are trading above its assessed fair value and no longer offer an attractive risk-reward profile.

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