What is ALO.PA's Intrinsic value?

Alstom SA (ALO.PA) Intrinsic Value Analysis

Executive Summary

As of June 8, 2025, Alstom SA's estimated intrinsic value ranges from $4.62 to $35.13 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $35.13 +85.9%
Discounted Cash Flow (5Y) $25.81 +36.6%
Dividend Discount Model (Multi-Stage) $24.59 +30.1%
Dividend Discount Model (Stable) $4.62 -75.5%
Earnings Power Value $15.36 -18.7%

Is Alstom SA (ALO.PA) undervalued or overvalued?

With the current market price at $18.90, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Alstom SA's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.0% 3.5%
Equity market risk premium 5.8% 6.8%
Adjusted beta 1.05 1.17
Cost of equity 9.1% 12.0%
Cost of debt 5.0% 5.0%
Tax rate 17.2% 22.1%
Debt/Equity ratio 0.53 0.53
After-tax WACC 7.4% 9.2%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 8.3% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $18,489 (FY03-2025) to $31,908 (FY03-2035)
  • Net profit margin expansion from 0% to 8%
  • Capital expenditures maintained at approximately 3% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $26 $15,514M 101.0%
10-Year Growth $35 $19,821M 75.2%
5-Year EBITDA $18 $11,732M 101.4%
10-Year EBITDA $30 $17,431M 71.9%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 11.9%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 10.5%
  • Long-term growth rate: 2.0%
  • Fair value: $24.59 (30.1% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 12.0% (Low) to 9.1% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $3 to $6
  • Selected fair value: $4.62 (-75.5% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $874M
Discount Rate (WACC) 9.2% - 7.4%
Enterprise Value $9,529M - $11,849M
Net Debt $3,592M
Equity Value $5,937M - $8,257M
Outstanding Shares 462M
Fair Value $13 - $18
Selected Fair Value $15.36

Key Financial Metrics

Metric Value
Market Capitalization $8731M
Enterprise Value $12323M
Trailing P/E 43.22
Forward P/E 17.80
Trailing EV/EBITDA 7.30
Current Dividend Yield 27.49%
Dividend Growth Rate (5Y) -59.58%
Debt-to-Equity Ratio 0.41

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $10.54
Discounted Cash Flow (5Y) 25% $6.45
Dividend Discount Model (Multi-Stage) 20% $4.92
Dividend Discount Model (Stable) 15% $0.69
Earnings Power Value 10% $1.54
Weighted Average 100% $24.14

Investment Conclusion

Based on our comprehensive valuation analysis, Alstom SA's weighted average intrinsic value is $24.14, which is approximately 27.7% above the current market price of $18.90.

Key investment considerations:

  • Strong projected earnings growth (0% to 8% margin)
  • Consistent cash flow generation

Given these factors, we believe Alstom SA is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.