Take a pass on Celestica, says RBC Capital

Ahead of second quarter earnings from Celestica (Celestica Stock Quote, Chart, News TSX:CLS) analyst Paul Treiber of RBC Capital is sticking with his “Hold” rating on the stock.

Trieber issued an update on his coverage on Tuesday in which he set a target price of $7.50 per share, which is above analysts’ target consensus of $6.69.

Headquartered in Toronto, Celestica is an electronics manufacturing services company with an Advanced Technology Solutions (ATS) segment and Connectivity & Cloud Solutions (CCS) segment, the latter of which went through a review as part of a wider restructuring conducted by the company and featuring a disengagement from programs with Cisco Systems.

Celestica’s CCS segment saw its revenue drop last quarter due to demand softness from its communications customers, a state of affairs the company expects will continue into the second quarter, due on Wednesday July 29.

For its Q1 2020, Celestica reported total revenue down eight per cent year-over-year to $1.32 billion, with a five-per-cent drop in ATS revenue and a ten per cent decrease in CCS revenue. Adjusted earnings (non-IFRS) came in at $0.16 per share compared to $0.12 per share a year earlier. (All figures in US dollars except where noted otherwise.)

At the time, management spoke of the challenge currently being faced due to the COVID-19 pandemic, which has caused a decline in demand for Celestica’s products.

“While the full impact and duration of COVID-19 is unknown at this time, we believe Celestica’s swift response, diversification, improved operating model, and solid balance sheet position us well to weather this disruption. Despite the current challenges, our long-term goal to generate sustainable profitable growth remains unchanged,” said Rob Mionis, CEO and president, in a press release.

Year-to-date, Celestica’s share price is down 13 per cent. At press time, Trieber’s $7.50 target represented a projected 12-month return of 7.6 per cent.