Valeo Still Hard On The Throttle

Many, if not all, auto component suppliers talk about content growth as a driver, but France's Valeo (OTCPK:VLEEY) (VLOF.PA) has been delivering in a big way. Revenue growth has continued to outpace underlying industry production growth by a very healthy pace, with no real weak spots in the business. Investors have certainly taken notice, with Valeo shares up another 30% or so from the time of my last writing, and easily outpacing rival suppliers like Continental (OTCPK:CTTAY), BorgWarner (NYSE:BWA), and Denso (OTCPK:DNZOY) over that time.

Just how long these good times can continue is a key debate between the bulls and bears. Auto production volumes are slowing, and I'm skeptical that Valeo can escape that underlying reality. What's more, there are valid questions as to just how much content can be added to cars before consumers rebel and whether OEMs will start pushing suppliers for more concessions. On the other hand, electrification looks increasingly inevitable, and Valeo has been doing well with order wins for 48V systems. I continue to believe that high single-digit revenue growth and double-digit FCF growth remain plausible for Valeo and that the shares still have some upside, but I think the growth story here is a little long in the tooth.

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Valeo Still Hard On The Throttle