Celestica upgraded to a buy at Beacon Securities

A number of new announcements from Celestica (Celestica Stock Quote, Chart TSX, NYSE:CLS) have caused Beacon Securities analyst Gabriel Leung to upgrade his recommendation for the stock, moving from a “Hold” to a “Buy” with an unchanged target price of $13.00. (All figures in US dollars unless noted otherwise.)

Design, manufacturing and supply chain company Celestica announced today, first, the acquisition of light display equipment company Impakt Holdings for $329 million; second, an increase to its 12-18 month operating margin target range to between 3.75 and 4.5 per cent (was between 3.5 per cent and 4.0 per cent); and third, CLS announced that it anticipates full payment of the remaining proceeds (C$122 million) connected to the sale of its Toronto properties.

Leung says the Impakt acquisition and property sale will put Celestica’s net debt at around $190 million, representing just over 0.5x net debt/EBITDA.

“Overall, we view today’s news as being positive for the stock,” Leung said in an update to clients on Wednesday. “Furthermore, with the stock trading at ~8.7x current year P/E versus the group at ~12.7x, combined with CLS’ improving margin profile and stronger book of business, we view the shares as representing a compelling buying opportunity (even factoring potential reviewing uncertainty stemming from the CCS portfolio review).”

Leung currently projects CLS will generate revenue of $6.6-billion and EBITDA of $287-million in fiscal 2018. He says he will update his estimates after the company’s third quarter results, due on October 24.

The analyst’s $13.00 target stems from his 11x calendar 2018 P/E estimate and represents a projected return of 30 per cent at the time of publication.