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Celestica’s improving margins make it an attractive investment, says Paradigm

Celestica headquartersCelestica (TSX:CLS) is still an attractive investment because a softer than expected top line is being offset by improving margins, says Paradigm Capital analyst Gabriel Leung.

On Wednesday, Celestica reported its Q1, 2014 results. The company earned (U.S) $37.3-million on revenue of $1.312-billion, a topline that was down 4% from last year’s Q1.

CEO Craig Muhlhauser assessed the period with a pragmatic tone.

“Celestica delivered first-quarter revenue at the low end of our guidance range as end-market demand continued to be volatile, primarily within our communications business. Despite the challenges, we delivered operating results in line with our beginning-of-quarter expectations as a result of our focus on continuous improvement and disciplined cost management,” he said, adding: “We are also pleased with our operating margin improvements compared with the first quarter of 2013.”

Leung says the Q1 results were essentially in line with his expectations, with revenue a little softer than his prediction of $1.35-billion, and the street consensus of $1.37-billion. But the Paradigm analyst notes that the company’s operating margins improved to 3.1% from 2.5% in 2013. He believes this reflects improved operating efficiencies and a better and more diversified revenue mix.

In a research update to clients Thursday Leung reiterated his “Buy” rating and (U.S.)$12.50 one-year target on Celestica, implying a return of 13% based on Wednesday’s closing price of $11.08 on the NYSE.

Leung says he is encouraged by Celestica’s strong bookings going into 2014 and thinks potential catalysts such as an acquisition, a share buyback or a dividend could move the needle on the stock.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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