Alstom's Strategic Momentum and Financial Resilience: A Catalyst for Long-Term Growth

Alstom, the French rail transport equipment manufacturer, is emerging as a compelling investment story, driven by a transformative contract pipeline, margin expansion, and a strengthened balance sheet. At the heart of its FY2025/26 outlook is the $479 million extension of its operations and maintenance contract with New York's Metropolitan Transportation Authority (MTA) for the JFK Airport AirTrain—a deal that underscores the company's ability to secure high-value, long-term service agreements. This contract, part of a broader $3.4 billion order intake in the Americas region last fiscal year, positions Alstom to capitalize on its robust backlog and operational discipline.

The New York MTA Contract: A Beacon of Strategic Resilience

Alstom's seven-year MTA contract, which began in FY2024/25, is emblematic of its shift toward recurring revenue streams. The JFK AirTrain system, a critical artery for 10 million annual passengers, requires reliable maintenance and operations—services Alstom has delivered since 2003. The extension's value, while smaller than the $2.4 billion often cited in media reports (a likely conflation with the total backlog or other deals), remains significant: it contributes to Alstom's Services segment, which grew 6.2% organically in FY2024/25.

This contract's longevity and stability align with Alstom's strategy to prioritize service agreements over one-off equipment sales. Such deals provide predictable cash flows and reduce execution risk, critical as the company aims to lift Services segment margins to mid- to high-single-digit growth by FY2026.

Backlog, Margins, and Free Cash Flow: The Triple Engine of Growth

Alstom's total backlog of €95 billion as of March 2025 offers unparalleled visibility into its future earnings. This backlog, fueled by wins like the MTA contract and a book-to-bill ratio above 1, ensures a steady pipeline of revenue. Crucially, the Services segment—which now accounts for over 40% of orders—operates with higher margins than equipment sales, a trend Alstom is leveraging to boost profitability.

In FY2024/25, the company's EBIT margin expanded to 9.5%, up from 7.6% in FY2022/23. Management has set an ambitious target of 10-11% by FY2026, achievable through cost discipline and digitalization of maintenance operations. For instance, predictive maintenance tools are reducing downtime on assets like the JFK AirTrain, enhancing both profitability and customer satisfaction.

Free cash flow (FCF) is another pillar of resilience. After years of negative FCF due to acquisitions and integration costs, Alstom is now on track to generate €200-400 million in FY2025/26—a marked improvement from the €-183 million recorded in FY2023/24. This turnaround reflects the completion of its $7.5 billion acquisition of Bombardier Transportation in 2021, which has synergies fully realized and integration risks now behind it.

Deleveraging and De-Risking: A Stronger Balance Sheet

Alstom's financial health has also improved. Net debt dropped to €1.3 billion by March 2025, down from €2.1 billion in early 2022, as the company deleverages through FCF generation and asset sales. A lower debt burden reduces refinancing risks and provides flexibility to invest in high-return projects.

The completion of its Bombardier integration has eliminated a major operational overhang. The combined entity now benefits from a broader product portfolio—combining Alstom's signaling expertise with Bombardier's rolling stock—positioning it to win large-scale rail projects globally.

Investment Thesis: A Buy on Long-Term Value

Alstom's combination of a stable backlog, margin expansion, and improving FCF makes it a compelling play on global rail modernization. With a market cap of €11 billion, it trades at just 12x FY2026 consensus EBITDA estimates—a discount to peers like Siemens Mobility (part of Siemens Energy) or Bombardier.

Investment recommendation: Buy. Target price: €45 (assuming 15x FY2026 EBITDA). Risks include project delays or macroeconomic slowdowns, but Alstom's recurring revenue model and geographic diversification (60% of orders outside Europe) mitigate these concerns.

In conclusion, Alstom is no longer just a train maker—it's a services powerhouse with a proven ability to execute on long-term contracts. The MTA deal is but one example of a strategy that promises to deliver sustained growth and shareholder returns over the next decade. For investors seeking exposure to the global rail renaissance, Alstom is a rare blend of momentum and resilience.