Improving margins and a healthy macro environment have led Paradigm Capital analyst Gabriel Leung to raise his price target on Celestica (TSX:CLS).
In a research update to clients this morning, Leung maintained his “Buy” rating on Celestica, but raised his one-year target on the stock to $13.50, up a dollar from his previous $12.50 target, and an implied 12% return based on the stock’s price at publication date. His target is based on applying a multiple of 7x his expectations for the company’s fiscal 2015 EV/EBITDA, noting that Celestica’s peers currently trade at a 6.5x multiple.
Leung thinks Celestica’s revenue is shifting toward that of a higher-margin diversified manufacturing business. He says this, plus “generally positive industry data points”, have caused him to take a slightly more bullish view of the company’s prospects.
On July 24th, after market close, Celestica will report its Q2, 2014 results. The Paradigm analyst says he expects the company will post EPS of $0.23 on revenue of $1.42-billion, in line with the street consensus.
Drilling down on the macro environment, Leung notes that Celestica competitors Jabil and Plexus recently reported quarterly results and guidance that were better than expected, and Intel reported 19% year-over revenue growth in its Data Center Group, which includes products for workstations, storage computing and servers. He interprets these as positive signs for Celestica.