Last Update 28 Nov 25

Fair value Increased 0.71%

FR: Divisional Mix Dynamics Will Shape Future Performance Amid Industry Shifts

Analysts have modestly increased their price target for Valeo, raising it from €11.85 to €11.93. This adjustment is based on recent improvements in quarterly performance and updated evaluations of future profitability and revenue growth.

Analyst Commentary

Recent Street research on Valeo reflects a mix of cautious optimism and ongoing concerns about the company’s future trajectory. Adjustments to price targets indicate evolving views of the company’s risk and reward profile.

Bullish Takeaways

Bullish analysts highlight Valeo’s strong quarterly results, which have contributed to recent upward adjustments in price targets.
Solid revenue growth and improved profitability have reassured observers about the company’s execution capabilities.
The updates reflect confidence that Valeo can sustain its momentum across core segments. This supports further valuation improvements.
Incremental increases in price targets signal expectations for steady, if moderate, upside potential.

Bearish Takeaways

Bearish analysts remain cautious and cite ongoing risks related to Valeo’s divisional business mix and the challenges it presents for future performance.
Despite improving financials, some see potential headwinds that could impact sustained revenue or margin growth.
The maintained neutral or hold ratings point to underlying uncertainty. Valuation is considered fair in light of these risks.

What's in the News

Renault has ended its rare-earth-free electric vehicle motor project with Valeo and is seeking a more cost-effective Chinese supplier, according to Reuters. (Reuters)
Valeo has revised its earnings guidance and now expects 2025 sales of approximately EUR 20.5 billion with an operating margin between 4.5% and 5.5%. For 2028, the company projects sales between EUR 22 billion and EUR 24 billion, an operating margin of 6% to 7%, and global production of 90.6 million units. (Company announcement)
Valeo and 2CRSi have formed a strategic partnership to develop next-generation liquid cooling solutions for edge computing environments. The partnership aims to deliver compact and energy-efficient cooling systems for decentralized data centers. (Company announcement)

Valuation Changes

Consensus Analyst Price Target has risen slightly from €11.85 to €11.93, reflecting modestly improved market expectations.
Discount Rate remains unchanged at 12.3%, indicating no shift in perceived risk.
Revenue Growth projections have fallen from 1.54% to 1.08%, suggesting more conservative sales assumptions.
Net Profit Margin estimates have decreased from 3.80% to 2.68%, pointing to expectations of lower profitability.
Future P/E (Price-to-Earnings) ratio has increased from 4.97x to 7.20x, suggesting a higher valuation multiple for anticipated earnings.

Valeo's focus on electrification, ADAS, and smart lighting enhances its market position, driving future revenue growth.
Optimized operational efficiency and cost reduction measures improve Valeo's margins, positioning it for profitability as market demand increases.
Challenges in revenue and profitability are tied to order cancellations, underperforming segments, increased debt, and market volatility pressures.

Catalysts

About Valeo

A technology company, designs, produces, and sells products and systems for the automotive markets in France, other European countries, Africa, North America, South America, and Asia.What are the underlying business or industry changes driving this perspective?

Valeo's strategic focus on electrification, ADAS, software development, and smart lighting positions the company to capture growing market demand and potentially drive future revenue growth, particularly as their competitive positioning in these segments is strong.
The significant reduction in R&D expenses after reaching a peak suggests an improvement in operational efficiency, which could lead to an increase in net margins as the company optimizes its development processes.
Valeo's cost reduction measures have successfully lowered its breakeven point, providing the potential for enhanced net margins when market growth resumes, as the company will be better positioned financially to capitalize on increased sales volumes.
The company's restructuring efforts and streamlining of SG&A expenses are expected to yield ongoing cost savings, potentially leading to higher operating margins and overall profitability.
With a strong order pipeline and the anticipation of order intake recovery in 2025, along with improved business profitability from orders, Valeo could see a positive impact on earnings as previously postponed projects and new orders materialize in the following years.

Valeo Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Valeo's revenue will grow by 1.6% annually over the next 3 years.
Analysts assume that profit margins will increase from 0.6% today to 4.0% in 3 years time.
Analysts expect earnings to reach €874.8 million (and earnings per share of €2.64) by about September 2028, up from €125.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €477.9 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 4.6x on those 2028 earnings, down from 20.0x today. This future PE is lower than the current PE for the GB Auto Components industry at 11.7x.
Analysts expect the number of shares outstanding to grow by 0.6% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 12.1%, as per the Simply Wall St company report.

Valeo Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Valeo experienced the cancellation of orders worth €7.3 billion, particularly in the electrification segment in North America, due to changes in OEM product strategies, which could negatively impact future revenues.
The company's high-voltage electric powertrain business underperformed by 6 points against automotive production, indicating ongoing challenges in this key growth area, potentially affecting future profitability and revenue growth.
Disposals and a decline in original equipment sales led to lower overall revenues with sales down 0.5% like-for-like, showcasing vulnerabilities in revenue acquisition and market adaptability.
Despite efforts to increase cash flow, Valeo's substantial net financial debt of €3.8 billion and a need for further deleveraging could constrain financial flexibility and weigh on net margins.
Volatility in the automotive market, including potential tariff impacts on cross-border operations (e.g., Mexico), creates significant risk for cost structures and could pressure net earnings if not mitigated through customer compensation.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of €11.543 for Valeo based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €22.0, and the most bearish reporting a price target of just €8.8.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €22.1 billion, earnings will come to €874.8 million, and it would be trading on a PE ratio of 4.6x, assuming you use a discount rate of 12.1%.
Given the current share price of €10.21, the analyst price target of €11.54 is 11.5% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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