CLS Rides on Steady Cash Flow Growth: Will the Momentum Persist?

Celestica, Inc. CLS generated an operating cash flow of $126.2 million compared with $122.8 million in the year-ago quarter, bringing the respective tallies for the first nine months of 2025 and 2024 to $408.9 million and $330.5 million. 

Celestica is benefiting from solid demand in the Connectivity & Cable Solutions segment. The 43% uptick in CCS revenues year over year was primarily driven by strength in the hardware platform solutions portfolio consisting of CLS’ leading-edge networking products, including 400G switches and 800G switches. AI investments are driving demand for Celestica’s enterprise-level data communications and information processing infrastructure products, such as routers, switches, data center interconnects, edge solutions, and servers and storage-related products.

In the third quarter, inventory balance was $2.05 billion, up $226 million from the year-ago quarter and up $129 million from the prior quarter. Cash cycle days were 68 days, down sequentially from 70 days in the second quarter of 2025, while down from 71 days in the third quarter of 2024. A cash cycle indicates the average time it takes to convert inventory goods into cash through sales. Celestica’s strong revenue growth, combined with a stable cash cycle, indicates that cash is not held up unduly in excess inventory. 

Free cash flow was $88.9 million in the third quarter compared with $76.8 million in the prior-year quarter. Its capital expenditure stood at $37 million, 1.2% of revenues and well below the expected 1.5-2% of the revenue range. On the back of an improved profit outlook, Celestica has raised its guidance for free cash flow to $425 million from $400 million for 2025.

How are Competitors Faring?

The company faces competition from Jabil, Inc. JBL and Sanmina Corporation SANM in the Electronics Manufacturing Services industry. In the fourth quarter of fiscal 2025, Sanmina generated $199.1 million of net cash from operating activities compared with $51.9 million in the previous year’s quarter. In 2025, the company generated $620.7 million in cash compared to $340.2 million in 2024. Strong growth in Communications Networks and Cloud Infrastructure portfolio, combined with improvement in operational efficiency, is driving Sanmina’s cash flow.

In the first quarter of fiscal 2026, Jabil generated $323 million of net cash from operating activities compared to $312 million a year ago. Free cash flow stands at $272 million compared to $226 million a year ago. The company’s free cash flow was $1.3 billion in fiscal 2025, and Jabil remains committed to generating more than $1.3 billion in free cash flow in fiscal 2025. A higher free cash flow indicates efficient financial management practices, optimum utilization of assets and improved operational efficiency.

Celestica's Price Performance, Valuation & Estimates

Celestica’s shares have soared 223.5% over the past year compared with the industry’s growth of105.1%.

From a valuation standpoint, Celestica trades at a forward price-to-earnings ratio of 36.51, up from the industry average of 24.37.

Earnings estimates for 2025 have remained unchanged over the past 60 days, while the same for 2026 have decreased.

Celestica currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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