The third quarter saw French auto supplier Valeo (OTCPK:VLEEY) (FR.FR) come up short on underlying production outperformance, the first such underperformance since the first quarter of 2018, and the market certainly didn’t like it. While a negative reaction is perhaps understandable, particularly given Valeo’s recent run of outperformance, I think it’s short-sighted in light of upgraded guidance for the fourth quarter and ongoing evidence of meaningful content wins in areas like 48V and ADAS.
I continue to like Valeo’s globally diverse business and its balanced leverage to traditional internal combustion powertrains (which will be with us a while longer), intermediate “light hybrid” solutions, and future fully-electric powertrains, as well as increasingly sophisticated ADAS systems. I also like the valuation, as the shares appear meaningfully undervalued on mid-single-digit revenue growth, modest long-term improvement in FCF margins, and near-term EBITDA margins in the 12%’s.
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A Small Q3 Pothole Creates A Pullback Opportunity With Valeo
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