Celestica (NYSE: CLS) is an American technology company. And while the company isn’t a household name, its clients are. Those clients include names like Dell Technologies, Hewlett-Packard, IBM, Oracle, Applied Materials, and Honeywell. So what exactly does Celestica do?
The company starts by finding solutions to problems its customers face in the development of products. Once it does so, it assists in every step of the product lifestyle, from new product introduction to supply chain development, advanced manufacturing, logistics and fulfillment, and more.
Celestica’s business model has been highly successful, delivering tremendous revenue and earnings growth. Naturally, that has sent the price of the stock up. On a year-to-date basis, its price is up 103%. But with such strong growth in mind, is Celestica stock a Buy, Hold, or Sell at its current valuation?
Is Celestica Stock a Buy After Soaring 103% This Year?
As mentioned above, Celestica is up 103% year-to-date. But why has the stock seen such strong growth this year? There are a few reasons.
Strong Financial Growth
First and foremost, the company has had an incredible financial performance. When it comes to finances, the most watched figure typically is earnings growth, and that’s an area where Celestica hasn’t disappointed.
The company’s most recent earnings report was for the first fiscal quarter of 2024, and it did not disappoint. Revenue was up over 20% during the quarter. And the company’s margins improved significantly, leading to growth of 311.74% in net income. Diluted earnings per share were also up 325%. And while every aspect of a company makes a difference for investors, it’s hard to argue against the impact of a strong financial performance.
It’s also worth noting that Celestica has experienced significant cash flow growth. That’s important because companies in the tech industry need to produce significant cash flow growth in order to fund the growth of their companies.
Other Key Growth Drivers
But earnings and financials aren’t the only factors that are driving the growth in Celestica’s price. Here are a few other key growth drivers to consider:
- Strong Clients: Celestica has a long list of household names for clients. As it continues to perform for those clients, it will likely continue to benefit from its financial strengths.
- Connectivity and Cloud Solutions: There are multiple areas of Celestica’s company growing at the moment, but there’s one part of the company that is a clear winner — connectivity and cloud solutions. This segment of the business accounted for around 65% of the revenue growth we saw in the first quarter and will likely continue to perform well.
- Semiconductors: Semiconductors are a needed component for artificial intelligence systems, and Celestica is a key player in the industry. In fact, the company offers the technology companies need for a crucial step of semiconductor manufacturing — wafer fabrication. As the AI industry continues to lead to growing demand for semiconductors, Celestica is likely to continue generating meaningful growth.
What Analysts Think of Celestica Stock
According to TipRanks, nine analysts currently weigh in on Celestica stock. Six of those analysts rate the stock a Buy and three of them rate it a Hold, leading to a Moderate Buy consensus.
Analyst price targets on the stock range from $35.74 to $60 per share with a consensus of $49.14. Unfortunately, that consensus price target represents downside potential, suggesting that the stock could fall over 13% in the next 12 months.
Though I believe that the general trend of the stock will be upward ahead, it’s worth noting that there has been a change in analyst opinions throughout 2024. In January, the stock was the subject of eight Buy ratings and just one Hold rating. Unfortunately, there has been a shift in that figure to today’s count of six Buy ratings and three Hold. So, it looks as though some analysts expect a shift in momentum on the stock that could lead to slowing growth.
Should You Buy, Sell, or Hold Celestica?
In my opinion, Celestica stock is a buy. Here’s why:
- Financial Performance: Celestica’s recent financial performance has been nothing short of impressive. With such strong revenue and earnings growth, it’s hard to argue against investing here.
- Solid Clients: Celestic serves some of the world’s most well-known names in technology. And serving household brands like that means that the company’s clients have plenty of financial stability. Moreover, since many of these are longstanding clients, Celestica is proving that it is capable of keeping large companies engaged for a meaningful amount of time.
- Artificial Intelligence: The AI industry is seeing explosive growth. So, demand for semiconductors will likely continue to rise. Since Celestica is a key player in semiconductor production, it’s likely to benefit from this growth.
- Connectivity and Cloud Solutions: I believe Celestica will continue to see strong growth in this segment of its business.
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