Celestica is not overvalued, says Caldwell’s Radman

Caldwell Investment Management Portfolio Manager Jennifer Radman says Celestica’s (Celestica Stock Quote, Chart, News: TSX:CLS) assets provide a baseline value she finds attractive.

Radman was on BNN’s Market Call with host Michael Hainsworth today. She revealed her top picks, including Celestica, a stock that Hainsworth noted the street thinks is overvalued.

Radman says she disagrees with this assessment because of the amount of cash Celestica has on hand, the amount of free cash flow it spins off, and the value of the hard assets, such as land, it owns.

She says if you strip away these things, Celestica is trading at less than eight times this year’s earnings. What’s more, the low-margin business the company lost when their longtime manufacturing relationship with BlackBerry ended is being replaced by higher margin work that requires more engineering. She believes Celestica’s share price will rise as it adds more of this higher margin business.

With its stock having moved nearly two-dollars in little more than a month, Celestica finds itself trading near 52-week highs.

Last summer, Celestica announced a restructuring aimed at improving its margins. Management says the estimated cost of the move would be in the range of $55-million to $65-million, $44 million of which it says it ate in 2012.

Revenue from BlackBerry now accounts for close to zero for Celestica, falling from 20% of its total in Q4, 2011 and 10% in the third quarter of fiscal 2012. Management says it still relies too heavily on too few customers, something it is looking to remedy. Its top ten customers represented 67% of its revenue in 2012, down from 71% in 2011.

Shares of Celestica on the TSX closed today up 1% to $9.63.