Celestica is likely to update its medium-term outlook at investor meeting. Last year at its investor meeting in November, Celestica provided a preliminary outlook for revenue of $8.9-9.3B in FY25e and $9.5-10.0B in FY26e, along with adj. EPS targets of $2.97-3.10 in FY25e and $3.27-3.55 in FY26e. We believe Celestica may increase its FY25e outlook to >$10.3B (10% Y/ Y) and adj. EPS of >$4.00, effectively in line with RBC/consensus at $10.3B/$10.4B and $3.93/ $4.07, respectively. Similarly, for FY26e, we anticipate that Celestica may raise its outlook to $10.5-11.0B revenue (3% Y/Y mid-point) and $4.00-4.20 adj. EPS.
Switching demand may drive upside to Q3 CCS revenue. Our model calls for CCS revenue to fall 1% Q/Q to $1,600MM Q3, with Y/Y growth slowing to 35% from 51% Q2. We forecast CCS Communications revenue to rise 5% sequentially to $985MM, with Y/Y growth of 34%, in line with guidance for low-30% increase. We believe strong demand for switches from hyperscalers may drive CCS Communications revenue above our estimates. For CCS Enterprise, our model calls for revenue to decline 11% Q/Q to $615MM, with Y/Y growth consistent with Q2 at 37% and in line with guidance for mid-30% growth.
A&D to help mitigate industrial headwinds at ATS. Our model calls for ATS revenue to increase 7% Q/Q to $825MM Q3, with Y/Y growth improving to 4% from -11% in Q2. We expect strength in aerospace & defense (A&D) and capital equipment to help mitigate continued softness in industrial end markets, primarily in EV charging. Our outlook is consistent with Celestica’s guidance for a “low single-digit” Y/Y decline.
ODM Accton reported Q3 revenue above consensus. It is our understanding that Celestica and ODM Accton (TW:2345; not covered) are the top 2 ODM providers of ethernet switches. Based on monthly revenue press releases, Accton reported Q3/FY24 (Sept-qtr) revenue of NT$28.19B, above consensus at NT$26.16B. Revenue increased 15% Q/Q, with Y/Y growth accelerating to 26% Q3 up from 21% Y/Y Q2.
Peer Jabil reported Q4 slightly above consensus. On September 26, EMS peer Jabil (NYSE:JBL; not covered) reported Q4/FY24 (August-qtr) revenue of $7.0B, above consensus at $6.6B. The company provided FY25 guidance for $27B and $8.65 adj. EPS, effectively in line with consensus at $27.2B and $8.64. For Q1, guidance calls for $6.3-6.9B revenue and $1.65-2.05, bracketing consensus at $6.5B and $1.83. Jabil indicated that there are short-term demand challenges in certain end-markets, but it sees positive secular trends in data centers, EVs, healthcare, and capital equipment.
Maintain Outperform rating. Our Outperform thesis reflects: 1) Celestica is well positioned with hyperscalers and is likely to continue to see strong growth as hyperscaler data center buildouts ramp; 2) Celestica is benefiting from a shift to higher quality end markets through its ATS and HPS segments; and 3) Celestica’s upwards valuation re-rating is likely to continue. We believe Celestica warrants a P/E valuation re-rating above peers (now 7% discount to EMS peers vs. 29% discount over the last 5 years), given the company's EPS growth outperformance (19% vs. peers at 10%) and improving revenue mix (towards differentiated HPS revenue).