J.P. Morgan cuts Alstom to Neutral after 2 November profit warning

J.P. Morgan cuts target

The note, reported by Investing.com, followed Alstom's 2 November warning, which included about €1 billion in charges. J.P. Morgan said Alstom had already taken provisions in the second half of the previous fiscal year and had issued fiscal 2027 guidance below consensus estimates. The bank now expects the company's free-cash-flow inflection to be delayed by at least one year. It said risks to second-half guidance could not be ruled out and that the backlog review is expected to run through the end of the fiscal year. The cut to €15.60 from €28.00 reflects lower earnings estimates and a lower valuation multiple, according to the note.

Guidance cut

Alstom now guides to an adjusted EBIT margin of around 1% for fiscal 2026-27, down from 6.5% previously, a cut of 5.5 percentage points. Organic sales growth is expected in the low- to mid-single-digit range, against around 5% before, partly on lower railcar production. Free cash flow flipped from a positive forecast to an expected €1.5 billion burn for the full year. Alstom said the new margin figure implies a rebound to around 6.5% in the second half of fiscal 2026-27.

Preliminary half-year revenue was €9.3 billion, compared with €9.1 billion a year earlier. Orders came in at €11.0 billion against €10.5 billion, with €8.4 billion booked in the second quarter. The adjusted EBIT margin fell to around 4% from 6.4% a year earlier. Alstom attributed most of that to gross margin adjustments on projects executed for and from Germany.

Coradia Max delays

Alstom said additional technical issues and testing requirements on the Coradia Max platform surfaced in the first half of fiscal 2026/27. The first problems emerged after trains were already on the line, forcing expensive rework, and the retrofits are pushing schedules back and triggering penalties on other German programmes, Briefs reported. Six contracts are affected, XTB said, and the delays will result in contractual penalties.

Chief financial officer Bernard Delpit said the Coradia project now has a negative gross margin. Delpit said Sion's review found "not only were there engineering issues, but the organization surrounding project management was neither efficient nor effective." Management said the setbacks are execution-related, not supplier driven, with most manufacturing in Germany and development led from sites in Northern France. Alstom strengthened reviews of its most critical rolling stock projects and said those reviews gave greater visibility into execution risks, additional work requirements and knock-on effects on other projects. Alstom also started a broader overhaul to tighten execution and accountability, cut costs and simplify processes, Briefs reported.

Alstom trimmed its train car output target to roughly 4,000 units from as many as 4,500. This is the second downgrade since Martin Sion became chief executive in April; the first triggered a share price decline of around 30%, XTB said. The 2021 acquisition of Bombardier's rail business left Alstom with a number of low-margin contracts, XTB noted.

Market reaction

Alstom shares fell around 25% on Monday 2 November to about €11.50, their lowest since 2023, according to XTB. Briefs reported the shares fell as much as 31% in Paris before recovering to trade 23% lower, leaving a market value of €5.29 billion, and have more than halved this year. The stock closed at €15.81 on Friday 30 October, down 1.92%.

Debt plan and next steps

Negative free cash flow will make Alstom's €2 billion debt-reduction plan harder to achieve, XTB said. To protect its investment-grade rating, Alstom is weighing asset sales, Briefs reported. Delpit said "We have identified the assets and are beginning the process" without giving details. The company plans a new effort to reduce debt by about €2 billion, after former CEO Henri Poupart-Lafarge completed an earlier €2 billion programme.

Bloomberg Intelligence analysts Omid Vaziri and Sakshi Batra said the Coradia Max delays have spread into other German projects, turning margins negative and pushing milestone cash into later years. They added that the need for a new €2 billion debt-reduction plan is more concerning just two years after the prior recapitalization.

Alstom publishes half-year results on 17 November, followed by third-quarter results on 19 January 2027. The company plans a capital markets day in the second quarter of 2027. Sion aims to normalise performance from the next financial year. Alstom maintains its order book is strong and that operations should return to more typical levels then.