Celestica, Inc. CLS is scheduled to report third-quarter 2024 earnings on Oct. 23. For the third quarter, the Zacks Consensus Estimate for revenues is pegged at $2.41 billion, which implies growth of 18.01% from the year-ago quarter’s reported number. The Zacks Consensus Estimate for third-quarter earnings is pegged at 92 cents per share, suggesting a rise of 41.54% year over year. Earnings estimates for CLS have remained unchanged at $3.65 per share for 2024 and $3.99 per share for 2025 over the past 60 days.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
CLS Estimate Trend
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Earnings Surprise History
The leading electronics manufacturing services company delivered a four-quarter earnings surprise of 12.19%, beating estimates on each occasion. In the last reported quarter, the company delivered an earnings surprise of 10.98%.
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Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Celestica for the third quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Celestica currently has an ESP of 0.00% with a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Shaping Upcoming Results
During the quarter, Celestica introduced SC6100, a next-generation, 2U rackmount all-flash storage controller engineered to deliver greater performance for the most demanding enterprise application workloads. The energy-efficient solution, powered by two AMD EPYC Embedded 9004 series processors is optimized for a vast array of use cases such as file shares, databases, virtual desktops, online transaction processing, high-performance computing, high-frequency trading and more. It is a game changer for enterprises that rely on a large pool of data and real-time analytics for strategic decision-making. This is likely to have a favorable impact in the upcoming results.
The company is witnessing healthy traction in the Connectivity & Cloud Solutions segment. Strong demand for AI/ML compute products is expected to drive revenue in the enterprise end market. Healthy demand for networking products including 400G switches and 800G switches will likely propel net sales growth in the communications end market.
However, the Advanced Technology Solutions segment is expected to be plagued by weakness in the Industrial end market. Strength in commercial aviation and several defense customer wins in the aerospace & defense end market are expected to partially cushion net sales in this segment. Signs of recovery in the wafer fabrication equipment market are a tailwind for the capital equipment vertical.
Despite healthy demand for AI-powered products, fierce competition from Flex Ltd. FLEX and Jabil Inc. JBL is putting pressure on margins.
Price Performance
Over the past year, CLS has gained 120.4% compared with the industry’s growth of 23.4%. It has also outperformed its peers like Flex and Jabil over this period.
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Key Valuation Metric
From a valuation standpoint, Celestica appears to be trading at a discount relative to the industry, despite trading well above its mean. Going by the price/earnings ratio, the company’s shares currently trade at 14.44 forward earnings, lower than 15.01 for the industry but higher than the stock’s mean of 8.21.
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Investment Considerations
Celestica's extensive depth and breadth of offerings support a wide variety of customer requirements from low-volume, high-complexity custom products to high-volume commodity products. The company’s strong emphasis on innovation, product diversification, and AI advancements are key growth drivers. The rapid adoption of AI, data centers by enterprises across industries presents a solid growth potential for Celestica. Focus on production efficiency and effective working capital management is boosting profitability and free cash flow. Healthy momentum in several end markets, including enterprise, communication, aerospace and defense, augurs well for the company ahead of third-quarter results.
It is developing more than 100,000 square feet of additional capacity in Thailand and adding more than 80,000 square feet of incremental capacity in Malaysia. These initiatives will augment its production capabilities, diversify its operation and bolster its market leadership in AI-enabled products.
However, Celestica is experiencing demand softness in the Industrial end market owing to macroeconomic challenges and excess channel inventory. The company relies on raw material supplies from certain areas of Eastern Europe and the Middle East. The ongoing conflicts in those regions remain a major concern for its supply chain. In addition, growing geopolitical tension between China and Taiwan can impact its business in Asia.
End Note
With a Zacks Rank #3, Celestica appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. As several factors including intensifying competition in the electronic manufacturing services industry, escalating geopolitical unrest can weigh on margins.
On the positive side, CLS is currently trading at discounted valuation metrics, and given the company’s strong fundamentals, this might be a favorable entry point. Management’s strong emphasis on product innovation, healthy traction in several verticals, and growing AI proliferation across industries bode well for long-term growth.
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