Celestica price target raised at RBC

Following Q4 results, RBC analyst Maxim Matushansky likes what he sees from Celestica (Celestica Stock Quote, Chart, News, Analysts, Financials NYSE:CLS).

On January 29, CLS reported its Q4, 2023 results. The company posted Net Earnings of $84.2-million on revenue of $2.14-billion, a topline that was up five per cent over the same period a year prior.

“We are pleased with our solid fourth quarter results, delivering non-[international financial reporting standard] operating margin of 6.0 per cent and non-IFRS adjusted [earnings per share] of 76 cents,” CEO Rob Mionis said. “We had a strong finish to 2023 and achieved 10-per-cent revenue growth for the full year compared to 2022 while our non-IFRS adjusted EPS of $2.43 and non-IFRS operating margin of 5.6 per cent were each the highest in our company’s history.The strong momentum we had in 2023 is continuing into 2024, and we remain confident in our long-term strategy.”

As reported by the Globe and Mail, the Matushansky January 31 maintained his “Outperform” rating while raising his price target from (US) $33.00 to $38.00.

““Our price target multiple is justified at near the EMS peer average given Celestica’s greater exposure to the risk of hyperscaler demand slowing offsetting similar margins, similar cash conversion cycles, and higher NTM [next 12-month] EPS growth than peers,” the analyst argued. “We believe that as the market gains more comfort as to the sustainability of hyperscaler revenue, Celestica has the potential to trade near the high end of the EMS peer group or closer to the ODM peer group. While our longer term concerns around the electronics manufacturing industry and Celestica’s potential long-term growth rate and margins remain, we believe the secular growth in hyperscaler spending and potential for further guidance raises provide a catalyst for the valuation to further increase as compared to peers. Celestica has transformed itself away from traditionally low-margin end markets to non-traditional markets like industrial, aerospace & defense, healthcare, and capital equipment, and has increased its exposure to hyperscaler customers that should experience multi-year growth in data center expansion. In the nearer-term, we believe that while the risk remains of a macroeconomic slowdown impacting all of Celestica’s businesses or of a potential slowdown in hyperscaler spending, Celestica’s strong FCF and mix-shift to higher quality end markets should cause the business to be more defensive than it had been in prior slowdowns.”

At press time, shares of CLS on the NYSE were up 3.8 per cent to $34.35.