On Friday, a CIBC analyst adjusted the rating for Celestica (NYSE: NYSE:CLS), moving it from Outperformer to Neutral despite increasing the stock price target to $49 from the previous $41. The revision comes after an assessment of the company's first-quarter results and its projections for the second quarter and the rest of 2024, which surpassed FactSet expectations in terms of revenue and earnings per share (EPS).
Celestica's first-quarter EPS exceeded FactSet consensus by 19%, while its forecast for the second quarter and the full year of 2024 was approximately 12% higher at the midpoint. These figures suggest that Celestica is currently reaping the benefits of increased demand for compute capacity from hyperscalers, which is connected to the advancement of GEN-AI technologies.
Despite the strong performance, the CIBC analyst cited concerns over a slowdown in Celestica's Enterprise segment, as customer demand is shifting towards the Communications segment. This shift introduces a new risk factor and could potentially lead to slower growth in the company's revenue and EPS. Consequently, the analyst anticipates a deceleration in growth for the latter half of 2024 and into 2025.
While acknowledging Celestica's strengths as a company, the analyst indicated that a reassessment of their position would require evidence of renewed growth momentum, particularly within the Enterprise segment. This would need to be backed by increased capital expenditures from hyperscaler customers related to GEN-AI in 2025.
The new stock price target of $49 is based on a blended valuation method, which now applies a 15 times multiple (up from the previous 14 times) to the firm's 2024 EPS forecast as the primary measure, and a 9 times multiple to the 2024 EBITDA forecast as the secondary measure.
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