2019 will be a rebuilding year for Celestica, Beacon says

What will 2019 be like for Celestica?

Following the company’s second quarter results, Beacon Securities analyst Gabriel Leung has lowered his price target on Celestica (Celestica News, Stock Quote, Chart NYSE:CLS).

On Wednesday, Celestica reported its Q2, 2019 results. The company lost (US) $6.1-million on revenue of $1.45-billion, a topline that was down 15 per cent from the $1.7-billion in revenue the company posted in the same period last year.

“Celestica delivered second quarter results in line with our guidance, including another quarter of strong non-IFRS free cash flow,” CEO Rob Mionis said. “Our CCS segment delivered improved sequential and year-to-year margin performance, and we continue to progress on our portfolio optimization actions. While the ongoing weak demand in our capital equipment business continues to adversely impact our ATS segment performance, our other ATS businesses are performing well, as we ramp new programs and continue to drive productivity. Despite the volatility, we believe that capital equipment remains an attractive market in the long term and that we have the right strategy, relationships and capabilities in place to be successful in this business in future periods. As we navigate the challenging demand environment, we remain committed to executing our transformation plan. We believe that the end result will be a more diversified business, capable of delivering consistent, profitable growth.”

Leung summarized the quarter.

“Within CLS’ Advanced Technology Solutions segment (ATS, representing 39% of revenues) was up 2% y/y,” the analyst notes. “Revenues here continue to be negatively impacted by significantly lower demand in its capital equipment business, although aerospace and defence, industrial and healthcare was up double-digits y/y. Communication revenues (39% of revenues) was down 21% y/y driven by continued end market weakness, although this was offset by demand strength and new program revenues in sport of data center growth. Enterprise (22% of revenues) was down 25% y/y with demand strength offset by previously announced disengagements related to the company’s portfolio review. Excluding these disengagements, enterprise would have been flat y/y.”

In a research update to clients today, Leung maintained his “Hold” rating on CLS but lowered his one-year price target on the stock from (US) $9.00 to $7.50, implying a return of 8 per cent at the time of publication.

Leung thinks CLS will post EBITDA of $263-million on revenue of $5.87-billion in fiscal 2019.

“We expect 2019 to remain a rebuilding year, although things could improve into 2020 as demand picks up and new programs ramp up,” the analyst adds.