TSX:CLS - Post Discussion
Post by
retiredcf on Oct 24, 2024 8:54am
TD Raises Target
To US$70.00, GLTA
Q3/24 & INVESTOR UPDATE: PLAYING TO OUR THESIS
THE TD COWEN INSIGHT
Celestica reported a solid beat/raise, with 2025 guidance well ahead of consensus and close to our prior Street-high $4.47 EPS. We believe the results, guidance, and investor highlights support our thesis that Celestica will be a major beneficiary of increased investments in data centre communications equipment. With additional growth opportunities, we believe the guidance could be conservative.
Event:
Celestica reported Q3/24 results and held an investor presentation last night.
Impact: POSITIVE
2025 guidance well above consensus. We believe investors were most focused on the 2025 guidance, which came in at $10.4bln of revenue and $4.42 of EPS. While revenue guidance is in line with consensus, EPS is 8% higher, supporting our view that HPS revenue will be highly accretive to margins. 2025 guidance is slightly below our prior and current estimates as we believe management is being conservative and only providing their "high confidence" scenario. Guidance builds in visibility management has to Q3/25; another update will be provided after Q4 following full year order forecasts from customers.
Strong support of our Communications thesis. Management highlighted Celestica's market share leadership, particularly in 400G ethernet switching. This is expected to translate to 800G leadership and is even driving wins with 1600G. The 1600G win is not expected to contribute revenue until 2026, but it signals Celestica's technological strength and the close relationships it has with all stakeholders. We believe management is expecting a material increase in volumes from increased market demand and an expanding addressable market, consistent with our thesis.
Diversifying the customer base. Celestica managed to beat estimates while diversifying its customer contribution, supporting our view that other customers will ramp sales with Celestica. Celestica had two 10%+ customers at 25% and 12% of Q3 revenue. This implies revenue from the top customer declined q/q, but is likely due to the well-telegraphed product transition; this is expected to continue through H1/25. It also means that revenue growth from all other customers accelerated to 19% y/y, diversifying the customer concentration.
We have left our consolidated 2025 estimates largely unchanged, but our EPS goes up to $4.58, from $4.47, largely due to a lower share count from the share repurchases. PT increases to $70 using 9.3x our C25E EBITDA.
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