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On Thursday, BNP Paribas (OTC:BNPQY) Exane analyst Stephen Benhamou downgraded Valeo SA (FR:FP) (OTC: OTC:VLEEY) stock rating from Outperform to Neutral and adjusted the price target to €10.50. The $2.61 billion market cap auto components manufacturer, which according to InvestingPro trades at an EV/EBITDA multiple of 3.39x, has seen its shares rise 16.91% year-to-date. The analyst highlighted that while operating leverage, savings, and reduced capital expenditures are expected to drive a recovery in underlying free cash flow (FCF) for the automotive supplier Forvia starting around 2025, Valeo (EPA:VLOF)’s FCF recovery is anticipated to be more subdued and delayed until 2026. InvestingPro data reveals that Valeo’s current ratio of 0.81 indicates potential liquidity challenges, though the company maintains an overall GOOD Financial Health Score.
Benhamou noted that in recent years, suppliers’ cash flows benefited from working capital optimization, but the underlying FCF has been disappointing. He believes that the improving earnings and FCF quality, coupled with the dividend cut, should alleviate concerns over Valeo’s debt and support a re-rating of the stock. The analyst sees Forvia as the preferred supplier recovery play for around 2025, with any asset disposal acting as a potential catalyst.
However, for Valeo, the expectation is that similar drivers will influence its performance, but the recovery in FCF will be more modest in the 2025 estimate and is likely to unfold in the 2026 estimate. Benhamou’s adjustment of Valeo’s price target to €11 reflects approximately 6.7 times the estimated enterprise value to earnings before interest and taxes (EV/EBIT) for 2026, which is in line with European suppliers.
With the revised price target indicating limited upside potential for Valeo’s shares, the downgrade to Neutral reflects a more cautious outlook on the stock’s near-term growth prospects. This adjustment in rating and price target is based on the analyst’s expectations of Valeo’s financial performance and cash flow recovery timeline relative to its industry peers. Despite the cautious outlook, the company maintains a 2.92% dividend yield and has sustained dividend payments for 14 consecutive years. For more detailed financial metrics and exclusive insights, investors can access additional analysis through InvestingPro, which offers over 30 additional financial metrics and insights.
In other recent news, Valeo SA reported its full-year 2024 results, surpassing market expectations in operating profit and free cash flow. Following these results, Bernstein increased its price target for Valeo from €10.00 to €13.00, reaffirming an Outperform rating on the stock. The company’s financial performance showed resilience amid customer production disruptions and highlighted its preparedness to seize market growth opportunities. Additionally, Citi updated its price target for Valeo from €9.30 to €10.80, maintaining a Neutral rating. The analysts at Citi noted that Valeo is on track to meet its revenue and EBIT guidance for FY24, despite previous sales guidance reductions. They expect improvements in EBIT margins due to internal cost control and quality enhancements. Citi’s revised financial forecasts for Valeo reflect minimal changes for FY24E but slightly lowered expectations for FY25E and FY26E. Despite these adjustments, the projection for free cash flow remains mostly unchanged, and Valeo’s stock continues to hold a Neutral/High Risk rating.
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