Alstom shares fall 6% as J.P. Morgan, Citi flag prolonged margin pressure

 Alstom shares fell over 6% in Paris after J.P. Morgan and Citi downgraded the rail company and cut their price targets following a profit warning that Citi said largely relates to a €5 billion backlog on the Coradia regional train platform.

J.P. Morgan cut Alstom to “neutral” from “overweight” and lowered its December 2027 price target to €15.60 from €28, citing earnings cuts and a lower valuation multiple.

Citi moved to “neutral/high risk” from “buy” and cut its target to €14 from €28, saying the update "leaves as many questions as answers." It put the share price at €11.89 on Nov. 2, with a bull case of €25 and a bear case of €10.

Alstom took a hit of about €1 billion to adjusted EBIT in the first half, mainly on Coradia-Max projects, J.P. Morgan said. It called the size of the warning a surprise, given that Alstom took a hit of about €190 million in the second half last year.

Alstom guided for a free cash flow outflow of about €1.5 billion this year. J.P. Morgan expects free cash flow recovery to be delayed by at least 12 months because of ongoing execution issues, forecasting an outflow of €106 million in FY28 and an inflow of €918 million in FY29. 

Citi expects limited free cash flow in FY28 because progress payments have shifted later and the Coradia carries higher costs and penalties.

J.P. Morgan forecasts an adjusted EBIT margin of 1.2% in FY27, while Citi forecasts 1.4%. Citi said margins could stay below 7% until the Coradia program is complete, as the six Coradia contracts are now loss-making, and that the earlier 8-10% target could be pushed out to at least FY31.

Citi cut its FY27 adjusted earnings forecast to €0.07 per share from €1.69, citing weaker near-term execution, and J.P. Morgan cut its forecast to a loss of €0.19 per share from €1.54.

Alstom announced a €2 billion deleveraging plan with organic and inorganic measures. J.P. Morgan said the plan is needed to maintain Alstom’s investment-grade credit rating but will weigh on the share price in the coming months. 

It said options could include asset or joint-venture sales, convertible bonds and a capital increase. Citi expects some equity capital raise.

J.P. Morgan said the backlog review will last until the end of the fiscal year and risks to second-half guidance cannot be ruled out, though it sees low risk of further provisions on the German Coradia-Max projects. Alstom is targeting to "normalize performance from the next fiscal year," while Citi said details of new mid-term targets are due in Q2’27.