On Wednesday, Alstom (EPA:ALSO) SA (ALO:FP) (OTC: ALSMY) was downgraded by CFRA from Hold to Sell, maintaining a stock price target of EUR17.00. The downgrade comes as Alstom's share price has risen above this target, reflecting a market sentiment that has fully valued the company's successful deleveraging efforts, which have seen shares increase by 59% year-to-date.
In the first quarter of fiscal year 2025, Alstom reported sales of EUR4.39 billion, marking a 5.1% increase year-over-year. Still, the company experienced a decline in new orders, which fell by 5.9% year-over-year to EUR3.65 billion. This decline led to a book-to-bill ratio of 0.83, falling below the 1.0 threshold. A significant portion of the orders, 70%, originated from Europe.
The product breakdown for the orders received showed that Rolling Stock was the largest contributor at 39%, followed by Services at 33%, Signals at 25%, and Systems at 3%. Despite the dip in new orders, CFRA has maintained its earnings per share (EPS) forecast for Alstom at EUR0.94 for fiscal year 2025 and at EUR1.12 for fiscal year 2026.
CFRA cited tactical reasons for the downgrade, indicating that the share price has appreciated beyond the firm's target. To meet the book-to-bill ratio target of above 1, Alstom will need to secure significantly higher orders in the second quarter and second half of fiscal year 2025. Moreover, there is an anticipated dilution effect on earnings per share due to the issuance of new shares.
In other recent news, Alstom has reported strong results for fiscal year 2023/24, with adjusted EBIT reaching nearly €1 billion, a 17% increase from the previous year. Despite a negative free cash flow of €557 million, the company has announced a comprehensive deleveraging plan to improve its financial standing. Alstom has also revised its three-year pipeline to €190 billion, focusing on competitive markets.
In addition to these financial developments, Alstom has been making strides in environmental, social, and governance (ESG) aspects, reducing emissions and enhancing diversity within the organization. The company is also aiming for operational improvements to enhance profit and cash generation.
The company's outlook includes a book-to-bill ratio above one, organic sales growth of around 5%, and an adjusted EBIT margin of around 6.5% for the current financial year. Mid-to-long term goals include reaching an adjusted EBIT margin of 8% to 10% by fiscal year 2026/27 and generating at least €1.5 billion of free cash flow over the next three years. These recent developments indicate Alstom's commitment to financial stability and growth.
InvestingPro Insights
As Alstom SA (ALO:FP) (OTC: ALSMY) navigates through the challenges of a fluctuating order book and share price dynamics, the latest data from InvestingPro offers a mixed financial perspective.
With a market capitalization of $9.01 billion and a challenging P/E ratio of -22.28, investors are keenly observing the company's performance metrics. Notably, Alstom's revenue growth over the last twelve months as of Q4 2024 stands at 6.74%, with gross profit margins at a modest 12.56%, reflecting the concerns raised by CFRA regarding weak gross profit margins.
Despite not being profitable over the last twelve months, analysts on InvestingPro predict a turnaround, expecting the company to be profitable this year. This aligns with the impressive price total return of 65.68% year-to-date as of mid-2024, indicating strong market confidence.
The company's performance in the Machinery industry remains a focal point, with Alstom being a prominent player in the sector. However, potential investors should be aware that Alstom does not pay a dividend to shareholders, which may influence investment decisions.
For those looking to delve deeper into Alstom's financials and future prospects, InvestingPro offers additional insights. There are 9 more InvestingPro Tips available for Alstom, which could provide a more comprehensive understanding of the company's position and trajectory. Interested readers can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, which includes access to these valuable tips.
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