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Celestica Stock Drops 6.2% Despite Beating Earnings and Improving Guidance

Story Highlights

Celestica recently reported earnings that were as solid as can be in today’s macroeconomic environment. However, it seems that investors were not happy with the overall results, or the stock got caught in today’s market sell-off. Nonetheless, CLS has the backing of a five-star analyst who believes it has plenty of upside potential ahead.

After market close yesterday, supply-chain solutions provider Celestica (CLS) (TSE: CLS) announced its Q2-2022 financial results, which featured revenue and adjusted EPS that beat analysts’ estimates, coming in at the high range of management’s projections. The company also raised its guidance for the full year. Please note that all figures are in U.S. Dollars unless otherwise stated.

CLS now expects revenue of at least $6.7 billion for Fiscal 2022 and adjusted EPS to land between $1.65 and $1.75. This compares favorably to last quarter’s increased guidance, which called for $6.5 billion in revenue and $1.60 to $1.75 in adjusted EPS. Keep in mind that, according to the company, its guidance assumes that supply chains don’t get materially worse over the remainder of the year. 

Regarding its Q2 results, revenue increased 21% to reach $1.72 billion, beating analysts’ expectations of $1.66 billion. CLS’s operating margin came in at 4.8% on a non-IFRS basis compared to 3.9% in the same quarter last year. It also expects its operating margin to remain between 4% and 5% for the rest of the year.

Adjusted EPS came in at $0.44, an almost 47% increase year-over-year and ahead of Wall Street’s $0.42 EPS estimate. However, GAAP EPS was $0.29 compared to $0.21 in the same quarter last year.

Adjusted free cash flow also grew rapidly, increasing 38.8%, going from $31.2 million to $43.3 million. Another positive from Celestica’s report is its adjusted return on invested capital, which increased to 16.2% from Q2-2021’s figure of 13.7%.

Due to its profitability, CLS was able to repurchase almost $10 million worth of shares in Q2 (one million shares). This makes up about 0.8% of its market cap at current prices.

Wall Street’s Take on CLS Stock

Turning to Wall Street, CLS stock has a Moderate Buy rating based on one Buy and two Hold ratings assigned over the past three months. The average Celestica price target of C$17.10 implies 35.1% upside potential. Analyst price targets range from a low of C$16.68 to a high of C$17.96.

The one Buy rating comes from the notable five-star Canaccord Genuity (TSE: CF) analyst Robert Young, who is ranked #253 out of 20,978 overall experts tracked by TipRanks. He has a $14 price target on the stock (C$17.96), implying 42% upside potential.

Investor Sentiment is Neutral

Investors who hold portfolios on TipRanks have a neutral-to-slightly-negative view of CLS stock. Out of the 546,957 portfolios tracked by TipRanks, less than 0.1% hold the stock.

In addition, in the last 30 days, the number of TipRanks portfolios holding Celestica stock increased by 0.2%. In the last seven days, this number dropped by 0.7%. Nonetheless, the stock’s sentiment is slightly above the sector average, as demonstrated in the following image:

Conclusion: Celestica’s Earnings Report Was Solid

Celestica seems to have put out solid estimate-beating results. On top of that, the company increased its 2022 outlook and is experiencing high revenue and earnings growth. Despite this, the stock is currently down 6.2%.

Nonetheless, five-star analyst Robert Young is bullish on the stock, and his price target implies ample upside potential. Therefore, investors should consider looking into CLS stock.


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