Key Takeaways:
- Cash Flow Machine: CAF (Construcciones y Auxiliar de Ferrocarriles) has seen a massive turnaround in cash generation, with Free Cash Flow jumping to €98.77 million in the last twelve months, up from just €27 million in 2023.
- Price Projection: Our model projects the stock could climb to €83 per share by December 2027.
- Expected Returns: This target implies a powerful 18.5% annualized return, positioning the stock as a “Strong Buy” for value-oriented investors.
- Bus Growth: The Buses segment is quietly becoming a major engine, with revenue growing from €695 million in 2022 to €926 million in 2024.
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CAF (CAF) is often overshadowed by larger rail giants like Alstom or Siemens, but the Spanish manufacturer is currently outperforming where it matters most: profitability and cash flow.
While the Railway segment remains the core, generating €3.28 billion in revenue, the Buses segment (driven by its Solaris brand) is growing rapidly, now accounting for nearly 20% of total revenue.
Financially, the company is executing a textbook turnaround. LTM Operating Income has surged to €239 million (up from €136 million in 2022), driving operating margins to 5.4%. More importantly, the company is converting this profit into cash, with LTM Free Cash Flow hitting nearly €99 million.
With the stock trading at €60, investors are paying a depressed multiple for a business that is growing its top and bottom lines simultaneously.
See analysts’ full growth forecasts and estimates for CAF stock (It’s free) >>>
What the Model Says for CAF Stock
We evaluated CAF’s potential through 2027, factoring in the margin expansion trend and the compounding growth of its dual Rail/Bus strategy.
Our model signals a “Strong Buy.” Using a forecast of 7.2% Revenue Growth (CAGR) and 5.8% Operating Margins, the model projects the stock could reach €83 by the end of 2027.
This implies an 18.5% annualized return over the next two years.
This is a compelling risk/reward profile. It suggests that if CAF merely sustains its current trajectory, without needing heroic growth assumptions, the valuation gap will close rapidly.
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Our Valuation Assumptions
TIKR’s Valuation Model lets you plug in your own assumptions for a company’s revenue growth, operating margins, and P/E multiple, and calculates the stock’s expected returns.
Here’s what we used for CAF stock:
1. Revenue Growth: 7.2%
Growth is being driven by the Bus segment catch-up.
The company’s revenue mix is improving. While the Rail segment grew steadily to €3.28 billion, the Bus segment has exploded, adding over €230 million in revenue over the last two years.
Total revenues for the group have reached €4.46 billion in the LTM period, showing consistent year-over-year momentum.
We forecast revenue growth of 7.2% CAGR through 2027, assuming continued demand for sustainable urban transport (electric buses and trams) across Europe.
2. Operating Margins: 5.8%
CAF has successfully navigated the inflation headwinds that plagued the sector in 2022/2023. Gross margins have recovered to 48.3%, and Operating Margins have ticked up to 5.4% in the LTM period.
We project operating margins to expand slightly further to 5.8%, as the higher-margin service backlog executes and supply chain costs normalize.
3. Exit P/E Multiple: 13.5x
CAF currently trades at roughly 10.9x earnings, a discount to its industrial peers and its own history.
Our model assumes an exit multiple of 13.5x by 2027.
We chose a multiple that reflects a return to a “fair” industrial valuation. As cash flow consistency improves, the market should reward CAF with a multiple in the mid-teens, consistent with its 10-year average of ~14x.
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What Happens If Things Go Better or Worse?
The valuation provides a significant margin of safety (these are estimates, not guaranteed returns):
- Low Case: Even if margins stagnate and growth slows to 7%, the stock offers a positive 4.4% annual return (downside is cushioned by low starting valuation).
- Mid Case: If the company continues on its current 4-year path, we project a solid 10.0% annual return.
- High Case: If margins expand to 4.0% (Net Income Margin) and the market re-rates the stock aggressively, returns could reach 14.9% annual return over the longer term.
See what analysts forecast for the next 5 years for CAF stock (Free with TIKR) >>>
How Much Upside Does CAF Stock Have From Here?
With TIKR’s new Valuation Model tool, you can estimate a stock’s potential share price in under a minute.
All it takes is three simple inputs:
- Revenue Growth
- Operating Margins
- Exit P/E Multiple
If you’re not sure what to enter, TIKR automatically fills in each input using analysts’ consensus estimates, giving you a quick, reliable starting point.
From there, TIKR calculates the potential share price and total returns under Bull, Base, and Bear scenarios so you can quickly see whether a stock looks undervalued or overvalued.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
