Alstom: A Smooth Transition to a Stronger Rail Leader

Amid CEO succession uncertainty, Alstom (ALO.PA) is quietly building a fortress balance sheet and geographic dominance that positions it as a rare buy opportunity in rail infrastructure. While markets fret over leadership changes, the company’s €95 billion backlog, debt reduction to €434 million, and 18% EBIT growth reveal a business primed to outperform through transition. For investors willing to look past short-term noise, this is a chance to buy a rail giant at a strategic inflection point.

Operational Resilience: Metrics That Outrun Leadership Concerns

Alstom’s post-Bombardier integration has delivered textbook results. The backlog—now at €95 billion—is a cash-flow engine that guarantees visibility through 2027. Even more compelling is the 17.8% gross margin in the backlog, up from 17.5% a year ago, as legacy projects are closed and higher-margin orders flow in. This margin expansion is no fluke: cost synergies from integration have slashed SG&A expenses to 5.7% of sales, a full 0.9% improvement since 2023.

Meanwhile, the deleveraging playbook has been executed flawlessly. Net debt plummeted from €2.99 billion in March 2024 to €434 million today, thanks to asset sales, equity raises, and disciplined capital allocation. With €2.27 billion in cash and €4.25 billion in undrawn credit, Alstom is financially bulletproof to weather CEO transition or macro volatility.

Geographic Diversification: Americas & Asia Are the New Growth Engines

While Europe remains the core (€13.1 billion in orders FY24/25), Alstom’s geographic spread is now its strongest defensive shield. The Americas region delivered €3.4 billion in orders, including a €500 million win for Toronto’s GO Transit and New York’s JFK AirTrain expansion. In Asia/Pacific, despite a dip in equipment sales, the Services division grew by 14%, locking in recurring revenue from Japan’s Shinkansen and Australia’s rail networks.

This regional balance insulates Alstom from any single market slowdown. The Americas’ 47% order growth since 2023 alone underscores its potential as a profit lever.

Services & Sustainability: The Long-Term Moats

Alstom’s Services division, now 28% of sales, is its quiet growth star. With a 15% margin and €28 billion in multiyear service contracts, this segment is the ultimate cash cow—recurring, sticky, and less cyclical than equipment sales. Meanwhile, the push into green rail tech (e.g., hydrogen trains, AI-driven maintenance) aligns with global decarbonization mandates.

Sustainability metrics are ticking all boxes: 88% renewable electricity use and a 40% carbon reduction target achieved five years early. This ESG leadership keeps Alstom in CAC40 ESG indexes, attracting institutional capital in an ESG-conscious era.

CEO Transition: A Managed Handover, Not a Crisis

The announcement that CEO Henri Poupart-Lafarge will step down by March 2027 has spooked some investors. But this is anything but a leadership vacuum. Key points to note:
- Smooth Timeline: Poupart-Lafarge remains CEO until a successor is named, with a Board-mandated search already underway. No abrupt exits.
- Strong Bench: Regional leadership shifts (e.g., Andrew DeLeone to Europe, Martin Vaujour to AMECA) signal deep talent within the ranks.
- Track Record: Under his leadership, Alstom has delivered three straight years of margin expansion and €5.6 billion in cumulative FCF since 2023. The successor will inherit a company firing on all cylinders.

The market is pricing in transition risk, but fundamentals suggest this is a buying opportunity.

Investment Thesis: Buy Now, Collect in 2027

The case for Alstom is clear:
1. Backlog & Cash: A €95 billion backlog and €2.27 billion in cash create a fortress balance sheet.
2. Margin Momentum: The 6.4% EBIT margin is on track to hit 7-10% by 2027, per management targets.
3. Global Scalability: The Americas/Asia growth and Services’ 14% expansion ensure top-line resilience.
4. Transition Risk Already Priced In: Shares are down 7% YTD despite record results—this is a discount to seize.

The catalysts are set: 2027’s leadership handover will occur in a stronger Alstom, with debt paid down and services at scale. For investors, the window to buy at a P/E of 15x (vs. industry averages of 18-20x) is narrowing.

Final Call: The Transition Is the Opportunity

Markets fear leadership changes, but Alstom’s operational strength and geographic diversification make this transition a tailwind, not a headwind. With a €95 billion backlog, debt-free balance sheet, and a Services division primed for exponential growth, the company is set to outperform through 2027 and beyond.

This is a buy at current levels. The CEO succession isn’t a risk—it’s the final step before Alstom’s next growth chapter begins.

Roaring Kitty’s Take: The train is on the tracks—jump aboard before it leaves the station.