Celestica: AI Capex Boom Still Promising, Baked-In Premium Triggers Downgrade

seekingalpha11-05

CLS remains well positioned to report robust top/ bottom-lines, as observed in its supply agreements with numerous hyperscalers and AI-related companies.These developments have also contributed to its...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2481367725?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/184878150/image_184878150.jpg","is_english":true,"pubTime":"2024-11-05 00:00","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2481367725","market":"sh","top_or_hot":-1,"title":"Celestica: AI Capex Boom Still Promising, Baked-In Premium Triggers Downgrade","media":"seekingalpha","content":"<div>\n<p>CLS remains well positioned to report robust top/ bottom-lines, as observed in its supply agreements with numerous hyperscalers and AI-related companies.These developments have also contributed to its...</p>\n\n<a href=\"https://seekingalpha.com/article/4732623-celestica-stock-q3-ai-capex-boom-still-promising-baked-in-premium-triggers-downgrade-hold\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Celestica: AI Capex Boom Still Promising, Baked-In Premium Triggers Downgrade</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\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: AI Capex Boom Still Promising, Baked-In Premium Triggers Downgrade\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-05 00:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4732623-celestica-stock-q3-ai-capex-boom-still-promising-baked-in-premium-triggers-downgrade-hold><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>CLS remains well positioned to report robust top/ bottom-lines, as observed in its supply agreements with numerous hyperscalers and AI-related companies.These developments have also contributed to its...</p>\n\n<a href=\"https://seekingalpha.com/article/4732623-celestica-stock-q3-ai-capex-boom-still-promising-baked-in-premium-triggers-downgrade-hold\">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/4732623-celestica-stock-q3-ai-capex-boom-still-promising-baked-in-premium-triggers-downgrade-hold","article_id":"2481367725","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/184878150/image_184878150.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2481367725","pubTimestamp":1730736000,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"CLS remains well positioned to report robust top/ bottom-lines, as observed in its supply agreements with numerous hyperscalers and AI-related companies.These developments have also contributed to its","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["rate"],"viewcount":null,"language":"en","relate_stocks":{"CLS":"天弘科技"},"translate_title":"天弘：人工智能资本支出繁荣仍有希望，固有溢价引发评级下调","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CLS":0.9},"content_text":"CLS remains well positioned to report robust top/ bottom-lines, as observed in its supply agreements with numerous hyperscalers and AI-related companies.These developments have also contributed to its double beat FQ3'24 performance, raised FY2024 guidance, and exemplary FY2025 guidance.CLS' numbers are well supported by the robust AI market spending trends, as reported by TSM and numerous hyperscalers in the FQ3'24 earnings call.Even so, it is undeniable that CLS has pulled forward part of its upside potential after the immense rally, with it offering interested investors with a minimal margin of safety.At the same time, readers must not forget the inherently cyclical nature of data center capex, with it potentially triggering the stock's painful corrections.   DSGpro   CLS' Long-Term Prospects Remain Promising, Though The Baked-In Price Premium Offers Investors With A Minimal Margin Of Safety We previously covered Celestica Inc. (NYSE:CLS) in October 2024, discussing why it remained a compelling value Buy attributed to its cheap PEG non-GAAP ratio of 0.51x, as numerous market players continued to highlight robust AI demand. Combined with the hyperscalers' intensified capex guidance in the near/ intermediate term, we believed that the company remained well positioned to generate robust top/ bottom line growth through FY2026, despite the tougher YoY comparison from FY2025 onwards. CLS YTD Stock Price Trading View Since then, CLS has had a robust rally of +9.3%, outperforming the wider market at -1.7%, with a similar trend observed in its OEM peers in varying degrees. Much of the outperformance is naturally attributed to the market's optimism surrounding the ongoing AI capex cycle, as the world's largest foundry by market share, Taiwan Semiconductor (TSM), raises the FY2024 capex guidance to over $30B, compared to FY2023 levels of $30.4B (-16.2% YoY). This is also up from the original guidance range of between $28B and $32B offered in the FQ4'23 earnings call, with it implying robust AI spending trends, as similarly reiterated by the management: Every year, our CapEx is spent in anticipation of the growth that will follow the future years, and our CapEx and capacity planning is always based on the long-term market demand profile. As the strong structural AI-related demand continues, we continue to invest to support our customers' growth. (Seeking Alpha) While TSM has yet to offer their official FY2025 capex guidance, the CFO has already hinted at another outperforming year as \"next year looks to be a healthy year. So it is very likely that our CapEx next year will be higher than this year.\" These developments trigger robust tailwinds for a Tier 1 EMS and ODM company like CLS, since the latter supplies most of its products to OEMs and cloud-based service providers. If anything, CLS has already reported an extremely robust Connectivity & Cloud Solutions [CCS] segment performance in the FQ3'24 earnings call, with revenues of $1.68B (+3.7% QoQ/ +42.3% YoY) and richer profit margins of 7.6% (+0.4 points QoQ/ +1.4 YoY/ +5.1 from FY2019 levels of 2.5%). Much of its tailwinds are naturally attributed to the supply agreements to two hyperscalers (likely to be amongst Amazon (AMZN), Google Cloud (GOOG), Microsoft (MSFT), or Meta (META)), with the two comprising 37% of its FQ3'24 revenues and 41% of its YTD revenues - as they continued to signal higher AI-related capex spending in their FQ3'24 earning calls. This is on top of CLS's market leading offerings in the data center switches segment, as \"third-party data suggests that we have the market’s largest installed base as measured by deliveries of 400G ports over the past five years.\"  As the company launches the next-gen 800G switches and \"leading data center operators begin their transition to 800G,\" we can understand why it has benefited from the intensified capex in networking infrastructure during the AI boom, as the market also projects an accelerating +52% 3Y CAGR in the Ethernet switch market for bandwidth of 400G and higher.  These reasons are also why CLS has reported \"solid demand signals from many of our large customers, which are providing us with visibility for continued growth,\" with the management already pre-emptively offering a rich FY2025 revenue guidance of $10.4B (+8.3% YoY) and adj EPS of $4.42 (+14.8% YoY). Much of the tailwinds are likely attributed to its growing customer base, including:   Groq, an artificial intelligence company, through the manufacturing of AI/machine learning servers and full rack solutions from early 2025 onwards.  Another major hyperscaler customer for 1.6 Terabyte switching/ high-bandwidth networking solutions from 2026 onwards,  triggering great insights into its intermediate term top/ bottom-lines, despite the lack of backlog reporting. If anything, the CLS management has already hinted at its long-term outperformance, based on the projected \"annual hyperscaler spend on data center hardware will grow by more than $50 billion through 2027 or +40% to $186 billion,\" building upon the $133B spent in 2024 by the top five hyperscalers. The Consensus Forward Estimates Tikr Terminal These developments may also be why the consensus have further raised their forward estimates, with CLS expected to generate an accelerated top/ bottom-line growth at a CAGR of +14.7%/ +28.4% through FY2026. This is compared to the original estimates of +5.6%/ +8.8% and the historical growth of +4.1%/ +8.2% between FY2016 and FY2023, respectively. CLS Valuations Seeking Alpha This is also why we believe that CLS remains cheap at FWD P/E non-GAAP valuations of 17.66x, compared to its 1Y mean of 14.80x, 5Y mean of 9.39x, and the sector median of 24.19x. This is attributed to the relatively reasonable FWD PEG non-GAAP ratio of 0.63x, compared to its 1Y mean of 0.49x, 5Y mean of 0.52x, and the sector median of 1.82x. Even if we compare to CLS' peers, including Flex Ltd. (FLEX) at FWD P/E non-GAAP valuations of 14.27x/ FWD PEG non-GAAP ratio of 1.01x, Hon Hai Precision Industry Co., Ltd. (OTCPK:HNHPF) [2317:TW] at 15.53x/ 0.79x, and Quanta Computer (OTC:QUCCF) at 18.99x/ 0.65x, respectively, it is undeniable that CLS remains reasonably valued here.  So, Is CLS Stock A Buy, Sell, or Hold?  CLS 5Y Stock Price Trading View For now, CLS has charted new heights of $70s as it runs away from the 50/ 100/ 200 day moving averages. For context, we had offered a fair value estimate of $50.20 in our last article, based on the annualized FQ2'24 adj EPS of $3.64 (+5.8% QoQ/ +65.4% YoY) and the previous 1Y P/E mean of 13.80x. Based on the management's raised FY2024 adj EPS guidance of $3.85 (+58.4% YoY) and the current 1Y mean of 14.80x, it is apparent that CLS has ran away from our updated fair value estimates of $57.00. Based on the consensus FY2026 adj EPS estimates of $5.14, there appears to be a minimal margin of safety to our updated long-term price target of $76.10 as well. While we believe that CLS remains a long-term AI winner, we are uncertain about the stock price's overly fast and furious rally, with it leaving interested investors with a minimal margin of safety. This is especially since the data center-related capex trend is inherently cyclical, with it remaining to be seen when the company's bookings may taper, leaving it with high inventory levels and capacity under utilization, one that we have previously seen in the memory end-market. As a result of the potential volatility, we prefer to downgrade our rating for the CLS stock to a Hold here instead.  Do not chase this rally.","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/2481367725"}