Tuesday, CFRA, a financial research firm, adjusted its price target for Valeo SA (FR:FP) (OTC: OTC:VLEEY), decreasing it to €8.00 from the previous €9.00. The firm has sustained its Sell rating on the stock.
The revision reflects a reevaluation of Valeo (EPA:VLOF)'s performance and market position. CFRA's analysis takes into account the company's share price movement since the last update on October 28. The new target is based on a projected 2024 P/E ratio of 6.3 times, which is discounted compared to the average forward P/E ratio of 8.6 times of its peers. The analyst believes this discount is warranted due to Valeo's lower margins.
Despite the change in price target, CFRA has not altered its earnings per share (EPS) forecasts for Valeo. The firm's stance remains cautious due to what it perceives as an increasingly challenging outlook for the company. This perspective is supported by Valeo's third-quarter sales report, which showed a year-over-year decline of 2%, with OEM sales falling by 5%. The sequential decline in sales for this segment was even more pronounced, dropping 11.5% compared to the previous quarter.
Valeo has also revised its sales guidance for 2024 downward, although it has reiterated its operating margin and free cash flow expectations. CFRA anticipates that these market trends could lead to a further reduction in Valeo's earnings projections for 2025, a factor which the firm believes is not yet fully accounted for in the current share price.
In other recent news, automotive supplier Valeo SA has been upgraded from Neutral to Buy by BofA Securities. This decision follows Valeo's significant loss in stock value, nearly 70% since pre-Covid times, and a projected decline in earnings per share through fiscal year 2024. BofA Securities attributes the upgrade to a positive turn in earnings and Valeo's successful acquisition of new business deals.
The firm also anticipates growth in areas such as Advanced Driver Assistance Systems, Lighting, and ePowertrain technologies. Improvements are expected in profitability and earnings quality, driven by peak R&D expenditure, reduced accounting adjustments, favorable commercial terms on new contracts from 2025, and recovery from the semiconductor shortage's negative impacts.
BofA Securities predicts a robust margin expansion for Valeo in fiscal years 2025-26, with an increase of 160 basis points expected. The firm also projects a rise in free cash flow, with the yield potentially exceeding 20%. Based on these assessments, BofA Securities has increased its earnings estimates by approximately 11% on average for fiscal years 2024 through 2026,
InvestingPro Insights
Recent data from InvestingPro adds depth to CFRA's analysis of Valeo SA. The company's P/E ratio of 8.48, and an even lower adjusted P/E ratio of 7.03 for the last twelve months as of Q2 2024, aligns with CFRA's projected 2024 P/E ratio of 6.3 times. This valuation reflects the market's cautious stance on Valeo, which is further emphasized by the stock trading near its 52-week low.
InvestingPro Tips highlight that Valeo has maintained dividend payments for 14 consecutive years, with a current dividend yield of 3.51%. This could be attractive to income-focused investors, despite the recent 1.7% dividend growth decline. However, the company's weak gross profit margins, as noted by InvestingPro, support CFRA's concerns about Valeo's lower margins compared to peers.
The stock's recent performance, with a 30.44% price decline over the past six months, underscores the challenging outlook mentioned in the article. Investors seeking a more comprehensive analysis can access 12 additional InvestingPro Tips for Valeo, providing a broader perspective on the company's financial health and market position.
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