Celestica Inc. CLS has lost 10.8% over the past three months compared with the industry’s decline of 9.1%. The stock has outperformed peers like Flex Ltd. FLEX but lagged Jabil Inc. JBL over this period.
Three-Month CLS Stock Price Performance
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What Ails CLS?
Celestica’s products are highly sophisticated and typically based on the latest technological innovations that have historically led to high research and development costs. High operating expenses have contracted margins, resulting in almost a flat net income growth curve for the company for the past few years.
Revenues from the Advanced Technology Solutions segment (which accounted for 32% of total revenues) in fourth-quarter 2024 remained relatively flat at $805.8 million. The segment’s operating income decreased year over year due to lower operating leverage in the industrial end market. This has dented CLS’ growth prospects to some extent.
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CLS Rides on AI Traction
However, boasting more than two decades of manufacturing experience, Celestica is among the lesser-known winners of the AI (artificial intelligence) revolution. Supported by a simplified global network, the company is committed to delivering next-generation, cloud-optimized data storage and industry-leading networking solutions to help customers balance performance, power efficiency and space as technologies evolve.
In addition to the high-performance 800G family of network switches (vital for data centers that power AI applications) and storage solutions like the SC6100 controller and SD6200 platform (which provide efficient and scalable data storage for AI), Celestia offers Photonic Fabric – an optical compute and memory fabric solution capable of supercharging AI infrastructure. This transformational solution provides a foundational technology to advance AI while maintaining scalable, sustainable and profitable business models.
By integrating next-generation networking products with silicon photonics packaging solutions, Celestica aims to optimize supply chain solutions to reduce time to market. The data center switches combined with optical transceivers have the potential to handle and sustain high volumes of both inbound and outbound network traffic and cater to the demand for data center bandwidth for supporting AI/ML and data analytics applications. Innovative portfolio additions at steady intervals have been the hallmark of the company, which have helped it to record healthy top-line growth over the past few years.
Bullish Outlook Lends Support
For 2025, the company anticipates revenues of $10.7 billion, up from the previous projection of $10.4 billion. Non-GAAP operating margin is expected to be 6.9%, up from the prior outlook of 6.7%. Non-GAAP adjusted earnings are expected to be $4.75 per share, up from the previous outlook of $4.42. Adjusted free cash flow is expected to be $350 million, up from the prior view of $325 million. Non-GAAP adjusted effective tax rate is forecasted to be approximately 19%.
Estimate Revision Trend
Earnings estimates for Celestia for 2025 have moved up 47.1% to $4.78 over the past year. The positive estimate revision depicts optimism about the stock’s growth potential.
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End Note
As the company scales up production volumes and costs go down, possible uses for silicon photonics are likely to soar across several industries, including automotive, data center and high-performance computing, telecommunications, medical, aerospace and defense. We believe that Celestia is well poised for sustained growth over the years, backed by its robust infrastructure investments, solid technology know-how and wide industry experience spanning three decades.
However, high operating expenses for highly technological products have pressed margins. Although CLS is currently witnessing a downslide owing to challenging macroeconomic conditions, investors are likely to profit in the long run if they bet on this stock.
The stock delivered a trailing four-quarter average earnings surprise of 10.3%. It has a VGM Score of A. Celestia currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
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