Re-rating Potential as Transformation Gains Traction

研报英文原文证据摘录

Re-rating Potential as Transformation Gains Traction

nt in F2026).

With financial leverage at 2.3x at the end of F2026, already below the company’s 2.5x target, the free

cash flow provides meaningful optionality—supporting reinvestment in organic and inorganic growth at

attractive ROIC, share repurchases, and/or further deleveraging, with a combination of these levers most

likely.

CAE is actively reshaping its organizational culture, with a new incentive framework aligned to key value

drivers—free cash flow, operating margin and expansion, ROIC, and EPS growth—alongside a streamlined

organizational structure and talent realignment. Updated definitions of free cash flow, adjusted operating

income, and adjusted earnings better reflect underlying business performance, and when combined with

standardized metrics around simulator utilization and asset productivity, should enhance transparency,

improve capital discipline, and support a valuation re-rating.

While execution risk remains embedded in the outlook, management is clearly focused on building a

track record of meeting commitments. Guidance appears to incorporate a degree of conservatism on

organic growth, reflecting both a softer macro backdrop and near-term disruption associated with the

Transformation plan. That said, management struck a confident tone around delivery, with flexibility to

adjust should conditions evolve. We see potential upside to current guidance.

While near-term results may remain uneven, valuation appears de-risked as expectations have

been reset lower. We see material upside, supported by both internally driven initiatives and

strong underlying business fundamentals.

Current valuation at 11.5x EV/EBITDA on F2027 and FCF yield of~4.4% put CAE's valuation well below peers