On Thursday, BofA Securities adjusted its stance on Valeo (EPA:VLOF) SA (FR:FP) (OTC: VLEEY (OTC:VLEEY)) stock, elevating the automotive supplier's stock from Neutral to Buy. Accompanying the upgrade, the firm also increased the price target to €14.00, up from the previous €12.00.
The decision to upgrade Valeo SA comes after the stock experienced a significant loss in value, nearly 70% since the pre-Covid era, which was in line with its earnings per share (EPS) decline projected through fiscal year 2024. BofA Securities cites a positive turn in earnings and Valeo's recent track record of securing new business deals as key factors in their reassessment.
The firm highlights Valeo's strong growth prospects in areas such as Advanced Driver Assistance Systems (ADAS), Lighting, and ePowertrain technologies. Additionally, improvements are anticipated in profitability and earnings quality, driven by several factors: a peak in R&D expenditure, a reduction in the use of accounting adjustments, favorable commercial terms on new contracts starting from 2025, and a recovery from the negative impacts of the semiconductor shortage.
BofA Securities forecasts a robust margin expansion for Valeo in the fiscal years 2025-26, with an expected increase of 160 basis points. Free cash flow (FCF) is also projected to rise, with the FCF yield potentially exceeding 20%. Based on these assessments, the firm has raised its earnings estimates by approximately 11% on average for the fiscal years 2024 through 2026.
The revised price objective of €14.00 is influenced by the aforementioned factors as well as changes to the multiples and Discounted Cash Flow (DCF) inputs used in the firm's valuation model. This upgrade reflects BofA Securities' renewed confidence in Valeo's financial outlook and market position.
InvestingPro Insights
In light of BofA Securities' recent upgrade of Valeo SA, current InvestingPro data and tips provide additional context for investors considering the stock. Valeo's market capitalization stands at $2.31 billion, with a price-to-earnings (P/E) ratio of 8.69, indicating a potentially undervalued stock compared to industry peers. The adjusted P/E ratio for the last twelve months as of Q2 2024 further underscores this point at 6.82.
InvestingPro Tips suggest that Valeo has demonstrated a commitment to shareholders by increasing its dividend for 4 consecutive years, a sign of financial stability and confidence in future earnings. Additionally, the stock is currently trading near its 52-week low, which could present a buying opportunity for value investors. It's worth noting that Valeo is also seen as a prominent player in the Automobile Components industry, which may bode well for its competitive positioning.
For those seeking a deeper dive into Valeo's financial health and future prospects, InvestingPro offers additional tips and a thorough analysis, including a fair value estimation by analysts and InvestingPro's own fair value calculation, which currently stands at $7.51, suggesting potential upside from the current price. For more detailed insights, investors can explore the full range of InvestingPro Tips available for Valeo.
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