Investors Remain Skeptical About Alstom’s Medium-Term Targets

Narrow-moat Alstom is trying really hard to shift investor attention to the medium-term as the EUR 5.5 billion Bombardier Transportation acquisition still haunts the group. Management is confident that it can achieve its previously communicated medium-term target of 5% top-line growth and an adjusted EBIT margin in the 8% to 10% range, which implies EBIT growth in the 20% range if achieved. However, with the stock down 10% as of this writing and more than 50% from its 52-week high, the market remains skeptical about the integration of the group’s largest acquisition to date, which is plagued by unprofitable legacy contracts and poor customer relations. This is a true “show me” story with attractive upside to our EUR 38 fair value estimate that assumes the group can reach the bottom end of its medium-term guidance. This is an opportunity for patient investors with a stomach for potentially more bad news.