Celestica is far closer to the bottom than the top, PI says

For one analyst, at least, there’s light at the end of the tunnel for electronics manufacturing services company Celestica (Celestica Stock Quote, Chart, News TSX:CLS).

But it won’t be coming this week with the company’s quarterly financials.

PI analyst Gus Papageorgiou remains neutral on Celestica…

That’s according to PI Financial analyst Gus Papageorgiou, who in a corporate update to clients on Wednesday maintained his “Neutral” rating and C$9.30 target price for CLS, which represented a projected 12-month return of 5.7 per cent at the time of publication.

Dot-com crash survivor Celestica made it through the 2000s and then the early 2010s while mounting a company-wide restructuring in more recent years to streamline the business.

And while the efforts have paid off in more solid quarterly numbers, the company’s share price hasn’t looked so good over the past couple of years, where CLS has fallen from a ten-year high of C$19.94 back in April, 2017, to where it now resides in the C$8.50 – C$9.00 range.

Ahead of the company’s third quarter financials due on Thursday after market close, Papageorgiou says that he expects results as well as management guidance to come in line with estimates, although he will be watching to see if there are any signs of a turn-around in the company’s semi-equipment or display businesses.

Revenue is expected to be down 15 per cent year-over-year as CLS walks away from roughly $500 million of lower margin fulfillment business (annualized). The Advanced Technologies (ATS) group should see some growth but is being held back by poor markets in semi-equipment and displays. We expect operating margins to be flat to last quarter,” writes Papageorgiou. (All figures in US dollars unless where noted otherwise.)

The analyst is calling for revenue to be down 14 per cent for the Q4 and EPS down 45 per cent, which is largely in line with consensus estimates. He notes that the fourth quarter tends to have some season lift to it for Celestica but that it will likely be offset by the company exiting its fulfillment business. Papageorigiou says that during its last quarter, if the company’s semi business had broken even, CLS could have doubled its EPS.

Celestica “far closer to the bottom than the top, the analyst says…

“The shares are trading at under their tangible book value of US$6.89 – this tends to be the floor on this name. The balance sheet remains strong and we expect positive CFO. Although we do not see the quarter acting as a catalyst we do expect the shares to perform well when the semi business turns. We believe we are far closer to the bottom of that cycle than the top,” writes Papageorgiou.

Looking ahead, Papageorgiou is predicting fiscal 2019 revenue and EBITDA to come in at $5.810 billion and $234 million, respectively, and fiscal 2020 revenue and EBITDA at $5.882 billion and $271 million, respectively.

Last quarter, Celestica’s Q2 largely met analysts’ expectations with revenue of $1.45 billion, down from $1.70 billion a year prior but within management’s guidance of $1.4 to $1.5 billion, and EPS of $0.12 per share, down from $0.29 per share a year earlier.