Celestica Inc CLS

Primary Symbol: T.CLS

Technology

Celestica Inc. is engaged in designing, manufacturing, hardware platform and supply chain solutions. The Company operates in two segments: Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS). The ATS segment consists of its ATS end market and is comprised of its Aerospace & Defense (A&D), Industrial, HealthTech, and Capital Equipment businesses. Its Capital Equipment business is comprised of its semiconductor, display, and robotics equipment businesses. The CCS segment consists of its communications and enterprise end markets. The enterprise end market is comprised of Celestica’s servers and storage businesses. It offers a range of product manufacturing and related supply chain services to customers in both of its segments, including design and development, new product introduction, engineering services, component sourcing, electronics manufacturing and assembly, testing, complex mechanical assembly, systems integration, precision machining and others.

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Celestica Inc

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Post by retiredcfon Apr 26, 2024 9:07am

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Post# 36008981

RBC Report

These are in USD and their upside scenario target is US$66.00. GLTA

April 25, 2024

Celestica Inc.
A beneficiary of ramping AI spending

Our view: Celestica reported a solid beat and raise, with greater upside to Q1 than the last several quarters. Increased FY24 guidance was above expectations and appears conservative. While Celestica's largest customer drove Q1 upside, other hyperscalers are likely to contribute to growth later in the year. Maintain Outperform, as we see Celestica's valuation multiple continuing to re-rate higher on sustained strong hyperscaler growth.

Key points:

• Q1 upside stronger than typical. Q1 revenue was $2.21B (20% Y/Y), 5.2% above consensus at $2.10B and the high-end of guidance for $2.025-2.175B. Q1 upside was higher than Celestica's 3.2% TTM average of actual quarterly revenue above consensus. As a result, Q1 adj. EPS of $0.86 was $0.14 above consensus at $0.72, which excluding the $0.05 tax benefit is the largest beat vs. consensus since Q2/FY20.

Large customer drives Q1 upside. Revenue from Celestica's largest customer was up 172% Y/Y to ~$750MM or 34% of total revenue, rising from ~$620MM last quarter. Management appears confident in the sustainability of revenue from its largest customer, given: 1) revenue stems from 20+ programs; 2) a long 10+ year relationship; 3) the customer's co-investment in Celestica's facilities; and 4) Celestica's alignment with the customer's need for high value EMS services to address more complex, challenging product deployments.
Updated FY24 guidance suggests 2H growth to become more broad- based. Celestica raised FY24 guidance from >$8.50B revenue and >$2.70 adj. EPS to $9.1B and $3.30 respectively, above consensus at $8.79B and $2.93. Guidance implies 11% Y/Y growth 2H vs. 18% 1H. Management sees revenue from other hyperscalers increasing Q2 on new programs (switches and AI/ML compute) and ATS returning to growth 2H (vs. -3% Q1 and est. -7% Q2). Growth outside of Celestica's largest customer would help reduce concerns regarding the breadth of Celestica's growth; Q1 revenue excluding Celestica's largest customer was down 7% Y/Y.
Improving visibility to continued hyperscaler ramp. Hyperscalers represent 36% of Celestica's FY23 revenue and Celestica counts 8 of the top 10 global hyperscalers as customers. As shown by Meta's announcement yesterday that it is increasing capex for 2024 and 2025, hyperscalers are rapidly building data centers to address the GenAI opportunity. While competition concerns may persist, increased hyperscaler capex improves investor visibility to Celestica's continued near-term revenue growth from hyperscalers.
Maintain Outperform, raising target to $53.00. Our $53.00 price target reflects our revised estimates and remains based on 15x CY25e P/E. We see the valuation re-rating in Celestica's shares sustained (now 10% discount to EMS peers vs. 31% discount over the last 5 years), given the company's growth outperformance (+12% vs. peers at -6%) and improving revenue mix (towards differentiated HPS revenue).