CLS Rides on Portfolio Diversification: Can it Help Mitigate Risks?

Celestica Inc. CLS focuses on product diversification and increasing its presence in high-value markets to mitigate operating risks. Its strong research and development foundations allow it to produce high-volume electronic products and highly complex technology infrastructure products for a wide range of industries. The company continuously enhances its manufacturing and supply-chain capabilities while developing trusted relationships with leading customers. This strategy has augmented its market penetration in each of the markets it serves. 

The company offers a comprehensive range of solutions related to design and development, new product introduction, engineering services, component sourcing, electronics manufacturing and assembly, testing, systems integration, logistics, product licensing, after-market repair, return and information technology (IT) asset management and disposition services. Celestica's extensive depth and breadth of offerings support a wide variety of customer requirements, from low-volume, high-complexity custom products to high-volume commodity products.

Celestica’s diversified portfolio comprises enterprise-level data communications and information processing infrastructure, such as routers, switches, data center interconnects, edge solutions, servers and storage-related products, along with lifecycle solutions for mission-critical systems across aerospace/defense and engineering and supply chain solutions for medical device firms. Such a diverse product and customer base helps to improve business resilience by reducing dependence on a single industry and minimizing the adverse effects of an economic downturn in a specific sector.

Other Peers Focusing on Diversified Portfolio

Jabil Inc.’s JBL focus on end-market and product diversification is a key growth catalyst. The company’s target that “no product or product family should be greater than 5% operating income or cash flows in any fiscal year” is commendable. This initiative should position the company well on the growth trajectory. The diversification increases the reliability of Jabil’s top-line performance, thereby driving returns for investors in the long run.

Sanmina Corporation SANM offers end-to-end solutions that include product designing, manufacturing, assembling, testing and aftermarket support. Such an approach allows clients to rely on a single partner throughout the product lifecycle management. Its vertically integrated manufacturing process streamlines processes and lowers costs, enabling Sanmina to achieve greater economies of scale. Sanmina also has a strong presence across multiple end markets, including medical, defense, aerospace, communication, cloud infrastructure, automotive, industrial and energy.

CLS’ Price Performance, Valuation and Estimates

Celestica has surged 180% over the past year compared with the industry’s growth of 92.7%.

From a valuation standpoint, CLS trades at a forward price-to-sales ratio of 2.19, above the industry tally of 0.98.

The Zacks Consensus Estimate for CLS’ earnings for 2025 has remained static over the past 60 days.

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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