Should Celestica Be in Your Portfolio Post Strong Q4 Earnings?
Werte in diesem Artikel
Celestica, Inc. CLS recorded strong fourth-quarter 2025 results with adjusted earnings and revenues beating the respective Zacks Consensus Estimate. Top-line expansion year over year is backed by strong growth in the Connectivity & Cloud Solutions (CCS) segment. Management’s emphasis on innovation, product diversification and AI advancements was a key growth driver.CLS Rides on Strength in CCS Segment and Robust LiquidityCelestica is benefiting from healthy traction in the CCS segment, backed by robust demand in the Communication and Enterprise businesses. Resilient demand for 400G switches and 800G network switch adoption is driving growth in the Communications end market. Ramping of a next-generation AI/ML compute program with a large hyperscaler customer is driving growth in the Enterprise business. Revenues from the Enterprise business were up by 33% year over year, while the communications end market generated 79% year over year growth in net sales. Total revenues in the Connectivity & Cloud Solutions (CCS) segment improved 64% year over year to $2.86 billion. The company is closely working with Google on the development of complex data center hardware and systems. It is the preferred manufacturing partner for Google’s Tensor Processing Unit (TPU). The company is steadily expanding its capacity and capabilities in the United States and globally to support growing adoption of Google’s custom silicon TPU systems.In the fourth quarter of 2025, Celestica generated $250.6 million in cash from operations compared with $143.4 million in the year-ago quarter. Free cash flow was $155.9 million, up 62.7% year over year. This accentuates efficient capital management and implies that the company is well-positioned to invest in growth initiatives, as well as pay debt and dividends.The company’s inventory balance was $2.19 billion, up $427 million compared to the prior year. Cash cycle days were 61 days; an improvement of 8 days compared to the prior year quarter. A cash cycle indicates the average time it takes to convert inventory goods into cash through sales. Celestica’s reduced cash cycle days are a positive factor. Moreover, CLS’ strong liquidity better positions it to navigate economic downturns and capitalize on emerging growth opportunities in the electronics manufacturing service industry.Major Challenges for CLSCelestica’s growth is highly dependent on AI data center spending by hyperscalers. Any downtrend in hyperscaler capex can significantly impact demand for Celestica’s data center solutions. Moreover, the company is highly exposed to significant customer concentration risk. Its largest three customers generated approximately 63% of total revenues in the fourth quarter of 2025. The company operates in a highly competitive electronics manufacturing services industry. It faces competition from other industry leaders such as Jabil, Inc. JBL, Sanmina and Flex Ltd. FLEX. Given the competitive nature of the industry, any changes in the demand pattern of any of the major customers can have a significant negative impact on the company’s financial results.It is also witnessing weakness in the Advanced Technology Solutions segment. Revenues declined 1% year over year in the fourth quarter. Capital Equipment business remains soft. The Aerospace and Defense portfolio reshaping strategy is weighing on growth in this segment.Moreover, the company generates the lion’s share of its revenues outside of North America. This exposes it to foreign exchange fluctuations. Growing geopolitical volatility worldwide can impact the company’s operations.Price PerformanceCelestica has increased 125.4% in the past year compared with the Electronics - Manufacturing Services industry’s growth of 74.4%. The stock has outperformed the Zacks Computer & Technology sector and the S&P 500 during the same time frame.Image Source: Zacks Investment ResearchThe company has outperformed its peers like Jabil and Flex. Shares of Jabil have jumped 51.8% and shares of Flex have risen 57.4%.Estimate Revision TrendEarnings estimates for Celestica for 2025 and 2026 have increased over the past 60 days.Image Source: Zacks Investment ResearchKey Valuation Metric of CLSFrom a valuation standpoint, CLS is currently trading at a premium compared to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 34.42 forward 12-month earnings, higher than 23.59 for the industry. Image Source: Zacks Investment ResearchEnd NoteCelestica is witnessing solid momentum in the CCS segment, backed by solid demand for the company’s enterprise-level data communications and information processing infrastructure products, such as routers, switches, and data center interconnects. Strong growth in cash flow and robust liquidity are positive factors. Capital discipline and efficient capital management are tailwinds. However, demand softness in the ATS segment due to softness in the capital equipment business is weighing on the top line. Customer concentration and high dependence on hyperscalers’ AI-related spending remain a major concern. With a Zacks Rank #3 (Hold), CLS appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Free Report: Profiting from the 2nd Wave of AI ExplosionThe next phase of the AI explosion is poised to create significant wealth for investors, especially those who get in early. It will add literally trillion of dollars to the economy and revolutionize nearly every part of our lives.Investors who bought shares like Nvidia at the right time have had a shot at huge gains.But the rocket ride in the "first wave" of AI stocks may soon come to an end. The sharp upward trajectory of these stocks will begin to level off, leaving exponential growth to a new wave of cutting-edge companies.Zacks' AI Boom 2.0: The Second Wave report reveals 4 under-the-radar companies that may soon be shining stars of AI’s next leap forward.Access AI Boom 2.0 now, absolutely free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Jabil, Inc. (JBL): Free Stock Analysis Report Flex Ltd. (FLEX): Free Stock Analysis Report Celestica, Inc. (CLS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks
Quelle: Zacks