Celestica Stock Poised for Recovery: Stifel Upgrades to Buy Despite AI Investment Slowdown

Stifel sees Celestica stock poised for recovery despite AI investment slowdown By Investing.com

On Monday, Stifel upgraded Celestica (NYSE:CLS) stock from Hold to Buy, maintaining a price target of $58.00. The decision comes after Celestica's shares experienced a significant drop last Friday, falling approximately 10.6% compared to the S&P 500's 1.7% decline on the same day. Since July 16, Celestica's stock has seen a 35.2% decrease, which contrasts with the S&P 500's 4.6% fall over the same period. The downgrade in Celestica's stock value is believed to be due to market concerns over a potential slowdown in AI investments from major hyperscale clients. These concerns were sparked by earnings reports from key suppliers, including Nvidia (NASDAQ:NVDA) and Broadcom (NASDAQ:AVGO), which suggested a cautious outlook in the sector. Despite the recent decline in stock value, Stifel remains optimistic about Celestica's financial prospects. The firm's analysts hold the view that the company's 2025 earnings per share (EPS) estimate of $4.00 is still within reach. This projection already accounts for an anticipated decrease in server sales resulting from a technological shift by a major customer, speculated to be Google (NASDAQ:GOOGL). The expected decline in server sales is projected to be more than compensated by growth in Celestica's communications segment. This optimism is partly based on the anticipated investment cycle in 800-Gigabit Ethernet switches, which is expected to contribute positively to the company's revenue stream. Stifel's maintained price target of $58.00 reflects confidence in Celestica's ability to navigate through the current challenges and capitalize on upcoming market opportunities. The upgrade to a Buy rating suggests that the firm sees the recent sell-off as an overreaction to the market's immediate concerns, and that Celestica's long-term prospects remain strong. In other recent news, Celestica has seen positive adjustments to its financial outlook following its second-quarter 2024 earnings, which surpassed consensus estimates. This led to an upward revision of its 2024 outlook, anticipating a nearly 50% increase in non-IFRS EPS to $3.62, and a revenue jump of almost 20% to $9.5 billion compared to the previous year. Analysts from Argus, RBC Capital, and Stifel have responded to these developments by raising their price targets for Celestica, citing factors such as the company's diversification into high-growth sectors and advancements in artificial intelligence and machine learning. However, a CIBC analyst downgraded Celestica to Neutral, despite raising the stock price target, due to potential slower growth in the Enterprise segment. Additionally, Celestica recently expanded its senior secured credit agreement to $1.5 billion to support its growth initiatives. This financial restructuring is part of Celestica's strategy to maintain its growth trajectory. These are recent developments that provide investors with insights into Celestica's financial performance and analyst perspectives. In light of Stifel's recent upgrade of Celestica (NYSE:CLS) to a Buy rating, it's worth considering additional insights that could inform investor decisions. According to InvestingPro data, Celestica has a market capitalization of $4.85 billion and is trading at a P/E ratio of 13.32, which is modest relative to its near-term earnings growth. The company's revenue showed a healthy increase over the last twelve months as of Q2 2024, with a growth rate of 13.45%. Furthermore, the revenue growth for the same quarter was even more impressive at 23.33%. This financial health is indicative of Celestica's ability to grow despite market challenges. InvestingPro Tips also highlight that management has been aggressively buying back shares, which could be a sign of confidence in the company's future performance. Additionally, 8 analysts have revised their earnings upwards for the upcoming period, suggesting a positive outlook on the company's profitability. It's also worth noting that the stock is currently in oversold territory according to the Relative Strength Index (RSI), which might interest value investors looking for potential rebounds. For those interested in more in-depth analysis, InvestingPro provides a total of 15 additional tips on Celestica, available at https://www.investing.com/pro/CLS. However, it's important to recognize that the stock has experienced volatility, taking a significant hit over the last week and month, with a one-week price total return of -19.42% and a one-month return of -14.13%. Yet, the year-to-date price total return shows a strong gain of 40.13%, underscoring the stock's resilience over a longer period. With the next earnings date set for October 24, 2024, investors will be watching closely to see if the company's performance aligns with the optimistic revisions and whether the current stock price presents a strategic buying opportunity.

Celestica up as Stifel upgrades company to Buy (NYSE:CLS)

Celestica (NYSE:CLS) stock was up ~4% as Stifel upgraded the company to Buy from Hold. The analysts said they believe that the FY25 EPS estimate of $4.00 is still achievable and reflects an expected decline in server sales due to a technology transition at a top customer. The expected decline should be more than offset by growth in its communications segment with the expected 800-G switch investment cycle, Stifel added. Stifel said the selloff concerns were primarily due to worries of slowing AI investments from hyperscale customers after the earnings reports of key suppliers. Shares in the company were up 40% since the start of the year. SA quant rates the company at Strong Buy, while SA analysts rate it at Buy More on Celestica Celestica: Weak Bargaining Power, Hold For Now Celestica: Fundamentally Attractive But Priced Dearly Celestica: Unparalleled Growth And Compelling Valuation Whale Rock dives into Google, Coupang, sheds Salesforce, Marvell, others in Q2