Celestica Stock Rises 21.6% in Three Months: Should You Invest?

Celestica, Inc. CLS has increased 21.6% in past three months period compared with the Electronics - Manufacturing Services industry’s growth of 22.4%. The stock has outperformed the Zacks Computer & Technology sector and the S&P 500 during the same time frame.

The company has outperformed its peers like Jabil, Inc. JBL and Flex Ltd FLEX. Shares of Jabil have jumped 10.3% and shares of Flex have risen 7.9%.

Celestica Rides on Solid Demand, Robust Cash Flow and Liquidity

Celestica is witnessing healthy traction in the Connectivity and Cable Solutions segment. During the third quarter, the CCS segment revenues rose 43.2% year over year to $2.41 billion. The company continues to boast a leadership position in the high-performance networking market with its comprehensive portfolio of 200G, 400G, and 800G Ethernet switches.

AI data center buildouts are driving demand for robust networking architecture that can support surging AI workloads. This is primarily driving growth for the company’s 800G switches. Management expects this will likely continue throughout 2026 and projects a 40% year over year revenue growth in the CCS segment.

Per a report from Markets and Markets, the AI data center market is valued at $236.44 billion in 2025. The market is expected to witness a 31.6% compound annual growth rate from 2025 to 2030. Growing AI proliferation and digital transformation across industries such as retail, financial services and healthcare are expected force major hyperscalers such as Microsoft, Amazon and Google to accelerate AI data center buildouts. This presents a solid growth opportunity for 400G switch products and 800G switch products. Moreover, in 2027, management expects growing usage of 1.6T switches to be a major growth catalyst. Its strong focus on innovation gives it an edge over its peers in the EMS industry, such as Jabil, Sanmina and Flex.

Celestica’s strong focus on efficient capital management to boost free cash flow is a positive factor. As of Sept. 30, 2025, the company had $305.9 million in cash and cash equivalents, with the long-term portion of borrowings under the credit facility and finance lease obligations of $756.7 million. As of the third quarter of 2025, Celestica has a current ratio of 1.47 compared to the industry’s 1.17. A current ratio above 1 suggests that a company is well-positioned to meet its short-term obligations.

Key Challenges for the Company

Celestica’s near-term revenue growth prospects are heavily reliant on AI data center capex. However, several factors, such as macroeconomic headwinds and tariff-related uncertainties, can impact investments in AI infrastructure, which can have a negative impact on Celestica’s financial results.

Persistent weakness in the ATS segment over the past few quarters is a concern. Elevated inventory levels in the Industrial end markets are primarily hindering net sales growth in this segment.
 
It is also exposed to customer concentration risks. In the third quarter, the company derived 59% of its total revenues from three customers. Given the competitive nature of the industry, any changes in demand or spending by one major customer can significantly impact its top-line growth.

Growing sales of hardware intensive products has led to rapid increase in cost of good sold. Hence this put pressure on gross margin to some extent as gross profit growth is always trailing the revenue growth pace.

Estimate Revision Trend

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

Key Valuation Metric of CLS

From a valuation standpoint, CLS is currently trading at a premium compared to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 35.51 forward 12-month earnings, higher than 24.54 for the industry.

End Note

Celestica’s comprehensive portfolio of data communications and information processing infrastructure products are expected to benefit from growing AI infrastructure investment. Strong focus on innovation and strategic collaboration with other industry leaders such as AMD and Broadcom to expand portfolio will likely bring long term benefits. Efficient capital management, growth in free cash flow and strong liquidity position are major tailwinds.

However, heavy exposure on AI data center market combined with risk associated customer concentration remains major concerns. Weakness in ATS segment is impeding the top line growth. With a Zacks Rank #3 (Hold), CLS appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. 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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