Wednesday, January 3, 2018

Valeo Stuck In A Construction Zone, But An Attractive Highway Awaits

This has been a challenging year for French auto parts supplier Valeo (OTCPK:VLEEY
, VLOF.PA). With recent disappointments in the company’s revenue growth and ongoing investments in electric vehicle (or EV) and driver assistance technologies pressuring margins, the shares haven’t performed quite as well as investors might have hoped. What’s more, there are near-term challenges like the status of Korean OEMs within China that could continue to pressure revenue in the short term.

Even so, I believe these are short-term impediments to a strong long-term story. Along with rival Continental AG (OTCPK:CTTAY), Valeo is carving out a strong position in the emerging EV ecosystem, and the company is well placed to capture significant content share in hybrids and pure electrics. Other opportunities like driver assistance remain attractive as well, with Valeo having an uncommonly broad technology footprint. A long-term target of 8% revenue growth and low-teens free cash flow growth is hardly conservative for any established auto parts company, but I believe Valeo’s leverage to EVs and ADAS can support it, and those projections in turn support a fair value about 10% higher than today’s price.

Read the article here:
Valeo Stuck In A Construction Zone, But An Attractive Highway Awaits

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