Celestica Stock Is A Real AI Bargain Today

seekingalpha11-02

Celestica's Q3 2024 report shows ~$2.5 billion in revenues - that was a 22% growth year over year, with the CCS segment experiencing a stunning 42% YoY expansion.We see Celestica continuing to raise ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCelestica Stock Is A Real AI Bargain Today\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-02 16:43 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4732360-celestica-stock-is-a-real-ai-bargain-today><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Celestica's Q3 2024 report shows ~$2.5 billion in revenues - that was a 22% growth year over year, with the CCS segment experiencing a stunning 42% YoY expansion.We see Celestica continuing to raise ...</p>\n\n<a href=\"https://seekingalpha.com/article/4732360-celestica-stock-is-a-real-ai-bargain-today\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"CLS","symbol_name":"天弘科技","start_time":0,"source_url":"https://seekingalpha.com/article/4732360-celestica-stock-is-a-real-ai-bargain-today","article_id":"2480084275","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1795497014/image_1795497014.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2480084275","pubTimestamp":1730537006,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Celestica's Q3 2024 report shows ~$2.5 billion in revenues - that was a 22% growth year over year, with the CCS segment experiencing a stunning 42% YoY expansion.We see Celestica continuing to raise i","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"CLS":"天弘科技","LU2045819591.USD":"Natixis WCM Global Emerging Markets Equity R/A USD","BK4145":"电子制造服务","BK4585":"ETF&股票定投概念","LU2125910500.SGD":"Natixis WCM Global Emerging Markets Equity H-R/A SGD","BK4588":"碎股"},"translate_title":"天弘股票今天是真正的人工智能便宜货","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CLS":0.9},"content_text":"Celestica's Q3 2024 report shows ~$2.5 billion in revenues - that was a 22% growth year over year, with the CCS segment experiencing a stunning 42% YoY expansion.We see Celestica continuing to raise internal expectations - the market is listening and following suit by also significantly raising revenue/EPS estimates en masse.Celestica still seems too undervalued to ignore. According to my calculations, the fair value of Celestica's stock today is around $101 - that's almost 48% more than the stock's price.Therefore, I've decided to update my \"Buy\" rating today.   J Studios  My Updated Thesis I initiated coverage of Celestica Inc. (NYSE:CLS) stock in mid-March 2024 with a \"Buy\" rating, calling it \"the ultimate AI pick at a reasonable price, unlike many other stocks in this space.\" In mid-July 2024 I decided to reiterate my \"Buy\" rating again calling as CLS's Q1 2024 results at the time exceeded expectations thanks to the strong performance in their CCS segment. I argued that the probability of Celestica beating analysts' forecasts for Q2 2024 was very high, while the stock itself seemed quite undervalued. As it turned out at the end of October 2024, when Celestica reported the actual figures for the second quarter and once again far exceeded expectations, my optimism wasn't in vain.   Seeking Alpha, CLS As a result, my call aged well:   Seeking Alpha, Oakoff's coverage of CLS stock Despite this success, I am of the opinion that Celestica hasn't yet fully exploited its true growth potential - in the medium term, the stock will probably remain under strong buying pressure due to its undervaluation and the company's further growth prospects. My Reasoning Celestica's Q3 2024 report shows ~$2.5 billion in revenues - that was a 22% growth year over year, with the Connectivity and Cloud Solutions (CCS) segment experiencing a stunning 42% YoY expansion. That was driven by \"intense demand from hyperscalers for data center infrastructure and networking switches in the HPS segment\", the press release noted. The operating margin of the CCS business rose by 140 basis points to 7.6% driven by \"an increase in volumes and a healthier product mix.\" On the other hand, ATS (Advanced Technology Solutions) saw a 5% decrease in the top line as the industrial segment continued to show weakness. Yet that was partly offset by gains in the Aerospace and Defense ((A&D)) and capital equipment sub-segments, which grew 15% and 31% YoY, respectively. The margin in ATS narrowed down to 4.8% as the industrial end market had lower operating leverage, but despite all these challenges, Celestica's overall non-IFRS operating margin improved by 100 basis points to 6.7%, illustrating how the company can exploit its strengths in strategic verticals.    Celestica's IR materials Celestica's adjusted EPS for Q3 2024 of $1.04 was well above the company's guidance level and was actually the highest quarterly EPS in the firm's history. Production efficiencies and operating leverage within the CCS business led to an increase in the adjusted gross margin of the company by 90 basis points to 10.7%. Further, Celestica's adjusted ROIC increased to 28.6% due to higher operating margins and improved working capital controls. As we know, Celestica has divested over $1 billion in non-strategic business in the past 5 years, including ending a long-term manufacturing partnership with Cisco (CSCO). This has enabled Celestica to benefit from strong demand for customer investments in AI and machine learning, along with accelerating demand for networking solutions from hyperscaler customers. As a result, we saw the wind out of the stock's sails, as it rose by 192% in the past year, putting it well ahead of most of its peers:   Seeking Alpha, CLS's Momentum I think end markets' conditions still favor Celestica's strategic plans, especially in the AI and data center market. The firm seems to be well-positioned to take advantage of the current tide of AI infrastructure investments made by hyperscalers and digital native companies. Celestica's background in creating and assembling advanced hardware, coupled with a full-service offering, allows it to service a wide range of customers in this rapidly growing market, which is a great competitive advantage, in my view. Looking beyond 2024, Celestica management anticipates continued growth, fuelled by new AI/ML compute wins and scaling up programs on hyperscalers. The company expects revenue growth of 8% in 2025, a non-IFRS operating margin improvement, and adjusted EPS growth of 15% YoY. I think Celestica's strong focus on growth-oriented, high-growth companies and rigorous financial approach should allow it to take advantage of new opportunities and keep bringing enduring value to shareholders, as it did in the recent past.   Seeking Alpha, CLS, Oakoff's notes A few words on the shorter term: The management estimates the revenue to come between $2.425-2.575 billion in Q4, a 17% mid-year increase. The adjusted Q4 EPS is expected to be $0.99-1.09 and the non-IFRS operating margin is expected to be 6.7%. For 2024 as a whole, Celestica expects $9.6 billion in revenues and $3.85 in adjusted EPS, up 21% and 58%, respectively.   Celestica's IR materials  Celestica's IR materials So based on this updated outlook, we see Celestica continuing to raise internal expectations - the market is listening and following suit by also significantly raising revenue/EPS estimates en masse:   Seeking Alpha, CLS At the same time, Celestica's balance sheet still looks healthy, with a cash balance of $399 million and total liquidity of ~$1.1 billion (including a revolver's $750 million borrowing facility). The firm's gross debt as of the close of Q3 2024 was $746 million, with a net debt balance of only $347 million. Celestica's trailing 12-month adjusted EBITDA vs gross debt ratio was 1.0 turns, also indicating a healthy balance sheet condition. All that makes me remain positive about Celestica's growth prospects - the company's positive earnings growth and prospects in the CCS space should keep the rally going, in theory. The still existing undervaluation, which I'd like to discuss below, also favors the rally's continuation, in my opinion. If you look at CLS, you'll see that it's trading at just less than 18 times the next year's EPS estimate, slightly above the 10-year historical average multiple. Some might argue that it indicates that CLS is now fairly valued, but I suggest looking at the firm's gross margin, which keeps climbing - it's now way over the norms of 2015 or 2021 when CLS was trading significantly more richly valued than today.   YCharts, Oakoff's notes So given Celestica's impressive growth rates, which are above the industry average, and the fact that the company is still lagging on some margin metrics (which I think will keep rising), it's reasonable to project a fair P/E ratio for the stock in the 20-22x range over the medium term. Historically, the company has consistently outperformed EPS consensus estimates, with an average upside surprise of around 8-12%, according to Seeking Alpha Premium. So if Celestica continues this trend and beats the current consensus by 8% for 2025, the stock should be fairly valued at $101 per share at a P/E of 21x by the end of 2025. This forecast suggests a potential upside of almost 48% from today's price, which represents a promising investment opportunity despite the astonishing rally over the past year. Celestica looks like a real bargain at its current price in its AI niche. So, based on all the above discussion, I think I have to leave my \"Buy\" rating unchanged this time around. Risks To My Thesis Despite its advantages, there are challenges for Celestica such as customer concentration risk and industry rivalry from the bigger guys. In Q3 2024, 2 customers made over 10% of the total sales, making 25% and 12% of sales, respectively. Although the company believes that it can still attain the right mix of multiprogram diversification for its biggest customers, I think the customer concentration it has today is a huge risk to be aware of, at least. In addition, Celestica's bold expansion plans in Thailand and Malaysia pose risks such as delays and higher costs due to logistical challenges and material shortages in the market. These projects are expected to boost sales and earnings growth in the foreseeable future, but from the perspective of the geographic location of CLS' presence, this makes Celestica a riskier investment. The resulting valuation discount could last longer than I'm expecting. Any reader of my article today should also keep in mind that my valuation calculations based on P/E multiple expectations may be wrong, as they appear to be subjective. So CLS may not have the upside potential that I would derive from a very different valuation metric. Your Takeaway Overall, Celestica continued to surprise me - the Q3 2024 report exceeded the numbers even more than I had expected in my previous article. Clearly, the AI hype is real - at least for Celestica, as the customer base continues to grow and the move to strengthen the Connectivity and Cloud Solutions segment was clearly the right strategic move. Now management is reaping the rewards and investors are enjoying a logical rally in the stock price. And I think this rally is far from over, as CLS still seems too undervalued to ignore. According to my calculations, the fair value of Celestica's stock today is around $101 - that's almost 48% more than the stock's price. Therefore, I've decided to update my \"Buy\" rating today.  Good luck with your investments!","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2480084275"}