Valeo Upgraded to 'Buy' by Jefferies on Strong China Orders, Margin Outlook

Jefferies has upgraded French auto-parts supplier Valeo to “Buy” from “Hold,” citing stronger-than-peer order growth from Chinese automakers and a favorable outlook for margin expansion. The brokerage also raised its price target on the company's stock to €17.85 from a previous €13.20.

China Orders Drive Upgrade

The upgrade is primarily based on Valeo's success in securing business with domestic Chinese original equipment manufacturers (OEMs). According to Jefferies, Valeo's performance in this key market is outpacing its competitors.

• In the first half of 2026, over 80% of Valeo’s orders in China were with local automakers.
• This compares favorably to peers Forvia (over 70%) and Aumovio (71%).
• Valeo’s Chinese OEM order intake represents a book-to-bill ratio of approximately five times, significantly higher than Forvia's three times and Aumovio's two times.

This strong order book suggests Valeo is well-positioned to capitalize on the growth of domestic brands within the world's largest automotive market.

Improving Profitability and Valuation

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Jefferies anticipates a notable improvement in Valeo's financial performance, forecasting that the company's adjusted core profit estimates for 2026 and 2027 are in the mid-single digits above the market consensus. The firm projects Valeo's second-half margin will improve to 5.2%, up from 5.0% in the first half.

A further 60-basis-point margin improvement is expected in 2027 as Valeo's growth outpaces the broader market. Jefferies noted that while Valeo trades at a premium to its peers at 7.3 times core profit, this is justified by its stronger growth outlook. The new price target is based on a multiple of 8.2 times the firm's 2027 enterprise value to core profit estimate.

Context and Potential Risks

While the core of the investment case rests on automotive trends, Jefferies also acknowledged a tangible contribution from outside the auto sector. Valeo began production in August for a $225 million North American battery energy storage order. The firm remains more cautious on a potential data-center solutions opportunity, stating it needs more concrete evidence before factoring it into its valuation.

Jefferies identified several risks to its thesis, including weaker-than-expected margin improvement in Valeo’s POWER division, failure to reduce R&D spending, and increased competition from Chinese suppliers. Broader macroeconomic factors, such as changes to global light-vehicle production forecasts and currency fluctuations, also pose potential headwinds.