Valeo Looks Undervalued On EV Assets, But Future Of Its Market Still In Flux

 

Auto production disruptions caused by semiconductor shortages and input cost headwinds have been a painful one-two punch to the gut for many auto suppliers so far this year, and Valeo (OTCPK:VLEEF) (OTCPK:VLEEY) (FR.FR) hasn’t gone unscathed despite two decent-or-better quarters since my last update. On top of the near-term concerns, bearish analysts continue to beat the drum that Valeo’s strong position in hybrid and EV components won’t matter due to widespread OEM in-sourcing for these vehicles.

I’ve never disputed that there will be in-sourcing, only that it won’t be as widespread as the bears predict and that at least a few of the OEMs pledging to in-source will change their minds when their in-sourced efforts prove inferior in the market.

I continue to believe that Valeo is significantly undervalued, but this is a story that still needs time to develop and upside is tied to ongoing improvements in order intake, particularly the high-voltage JV w Siemens (OTCPK:SIEGY). If Valeo can generate around 3.5% long-term revenue growth, with mid-to-high single-digit FCF growth, these shares are more than 50% undervalued today.

 

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Valeo Looks Undervalued On EV Assets, But Future Of Its Market Still In Flux