Alstom (ENXTPA:ALO) Could Be 25% Undervalued As VIA Rail Deal Sparks Fresh Interest
Alstom (ENXTPA:ALO) is back in focus after announcing a CAD 4.7b agreement with VIA Rail Canada to supply 313 Adessia passenger cars and provide long term support services across key national routes.
The VIA Rail Canada contract appears to have triggered a fresh look at Alstom, with the stock up 2.01% on a 1 day share price return to €16.5. However, the year to date share price return is still down 35.77% and the 1 year total shareholder return is down 17.62%, which points to momentum that is only starting to stabilise after a weak longer term picture.
Compare this VIA Rail contract with other potential rail and infrastructure opportunities by reviewing the hand picked 39 power grid technology and infrastructure stocks that could also be moving on long term capital projects.
Alstom now has a fresh flagship contract and a long track record in rail. The real test for investors is whether a €16.5 share price for a company of this scale and complexity still offers value.
Most Popular Narrative: 24.6% Undervalued
The most followed narrative for Alstom puts fair value at €21.89 per share, well above the last close of €16.50. This frames the VIA Rail Canada deal within a wider multi year earnings story.
The analysts have a consensus price target of €21.89 for Alstom based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €28.0, and the most bearish reporting a price target of just €10.0.
Read the complete narrative. Read the complete narrative.
Want to see what sits behind that valuation gap for Alstom? The narrative refers to faster earnings growth, improving margins and a future profit multiple that looks very different from today. The key is how revenue, profitability and the chosen discount rate work together in that model.
Result: Fair Value of €21.89 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, Alstom’s story still carries execution risk, with supply chain delays and low margin legacy contracts that could pressure cash flow and profitability if conditions worsen.
Find out about the key risks to this Alstom narrative.
Another View on Alstom’s Value
The SWS DCF model presents a very different picture for Alstom. In this view, the current share price of €16.50 is well above an estimated future cash flow value of €3.95. This suggests an overvalued stock when assessed using that cash flow framework. Which story appears more convincing to you: the earnings multiple or the cash flow analysis?
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Alstom for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 262 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
If the mix of cautious and optimistic sentiment around Alstom feels familiar, treat that as your cue to review the details yourself. Stress test the assumptions, and weigh both sides of the story using the 2 key rewards and 1 important warning sign.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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