Valeo Pounded Down On A Weak Transition Period

I had previously written that I thought Valeo (OTCPK:VLEEY) (VLOF.PA) shares could remain weak as the company stumbled through a weak transitional period, but I didn’t expect the shares to fall by a third on a year-to-date basis. Granted, the sector has been weak (BorgWarner (BWA) is down about 12% year-to-date, as is Schaeffler (OTC:SCFLF), and Continental (OTCPK:CTTAY) and Faurecia (OTCPK:FURCY) are down closer to 15%), but it seems like the shares have been hammered beyond what admittedly weaker-than-expected near-term results would other deserve.

Valeo management is calling for double-digit revenue growth next year, but the sell-side’s stance seems to be more along the lines of “yeah, sure you will…” and the market is not giving much credit for a backlog that should drive meaningful growth in few years’ time, particularly in new hybrid and EV programs. Although Valeo’s performance is doing nothing to build confidence today, if management can deliver better results in the fourth quarter (the third quarter is not looking promising), maybe these shares will finally recapture a little investor support.

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Valeo Pounded Down On A Weak Transition Period

Seeking Alpha: Tenneco Zigging When Others Zag

When gas prices were high and Class 8 truck orders were rolling in, Tenneco (NYSE:TEN) didn't look as strong as other vehicle part and component suppliers like Allison Transmission (NYSE:ALSN), BorgWarner (NYSE:BWA), and Cummins (NYSE:CMI). While the ABCs are now suffering from concerns about the health of the truck market, the impact of lower gas prices, and the future of the internal combustion engine (or ICE) powertrain, Tenneco seems better-placed for today's circumstances.

Relative to Cummins, I think Tenneco's emissions control business is well-positioned given its exposure to passenger and off-highway vehicles, and I think the company's also in a good position to take advantage of stronger near-term demand for bigger passenger vehicles. The long-term future of ICE powertrains in the passenger segment is a point to consider, but I believe Tenneco is still undervalued if it can generate 3% to 4% long-term revenue growth with a modest improvement in free cash flow generation.

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Tenneco Zigging When Others Zag

Seeking Alpha: Still Waiting For Tenneco's Margin And CV Leverage

On at least one level, Tenneco (TEN) offers a compelling story. European governments take emissions control fairly seriously, China is starting to take it more seriously, and while the commitment in the U.S. seems to wobble from administration to administration (or Congress to Congress), it has been marching toward higher standards. As the second-largest emissions player in the world (with around 22% share in light vehicles and 10% share in commercial vehicles), that should feed ongoing growth for Tenneco.

The problem is less about the story and more about the timing and valuation of that opportunity. Bullish analysts have been pushing a margin leverage and commercial vehicle growth story for a little while now, but the timelines keep sliding to the right. I don't disagree that Tenneco will get there, but the timing does have valuation implications. Although Tenneco's long-term DCF-based valuation isn't so impressive, the recent sell-off has pushed the price to a more attractive level on an EV/EBITDA basis.

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Still Waiting For Tenneco's Margin And CV Leverage

Seeking Alpha: Faith In Johnson Controls May Be Running Ahead Of Facts

While I understand that Wall Street is a discounting mechanism that looks forward more often than backward, I have a hard time reconciling the confidence that investors have shown in Johnson Controls (JCI) over the past three months with the likely trajectory of performance.

Johnson Controls said many of the right things at its recent analyst day, addressing issues like margin challenges in the automotive and building systems businesses and pointing to a promising future in batteries, but it seems like analysts are much too willing to reward the company with unprecedented operating improvements. A slight beat for the fiscal first quarter is certainly better than another miss, but back-loaded guidance and iffy auto margins leave me hanging on to some skepticism.

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Faith In Johnson Controls May Be Running Ahead Of Facts