CLS Stock Almost Doubles in a Year: Should You Take the Bait?

Celestica Inc. CLS has gained 98.8% over the past year compared with the industry’s growth of 36.4%. It has also outperformed peers like Flex Ltd. FLEX and Jabil Inc. JBL. Flex has gained 26.7% and Jabil is up 25.9% over this period.  

Celestica boasts a diverse portfolio of products that are integral to AI (artificial intelligence) applications. With more than 25 years of experience in manufacturing backed by a simplified and optimized global network, it is committed to delivering next-generation, cloud-optimized data storage and industry-leading networking solutions to help customers balance performance, power efficiency and space as technologies evolve. 

One-Year CLS Stock Price Performance

CLS Gains From AI Thrust

Celestia has benefited from the ongoing generative AI boom, thanks to the solid demand trends for AI/ML (machine learning) compute and networking products from hyperscale customers. In addition to the high-performance 800G family of network switches (which are vital for data centers that power AI applications) and storage solutions like the SC6100 controller and SD6200 platform (which provide efficient and scalable data storage for AI), Celestia offers Photonic Fabric – an optical compute and memory fabric solution capable of supercharging AI infrastructure. This transformational solution provides a foundational technology to advance AI while maintaining scalable, sustainable and profitable business models.

By integrating next-generation networking products with silicon photonics packaging solutions, Celestica aims to optimize supply chain solutions to reduce time to market. The data center switches combined with optical transceivers have the potential to handle and sustain high volumes of both inbound and outbound network traffic and cater to the demand for data center bandwidth for supporting AI/ML and data analytics applications.

Estimate Revision Trend

Earnings estimates for Celestia for 2025 have moved up 5.7% to $5.05 over the past 60 days, while the same for 2026 has improved 2.4% to $6.07. The positive estimate revision depicts optimism about the stock’s growth potential.

CLS Raises Guidance

Buoyed by solid demand trends, the company has raised its guidance for 2025. It anticipates 2025 revenues to be $10.85 billion, up from the previous projection of $10.7 billion. Non-GAAP operating margin is expected to be 7.2%, higher than the previous outlook of 6.9%. Non-GAAP adjusted earnings are expected to be $5 per share, up from the previous outlook of $4.75. 

High Operating Expenses Dent CLS' Prospects

However, despite a healthy growth momentum, Celestia remains plagued by margin woes. Its products are highly sophisticated and typically based on the latest technological innovations, which have historically led to high research and development costs. High operating expenses have contracted margins. This has dented CLS’ prospects to some extent.

Moreover, Celestica faces stiff competition from industry giants like Foxconn, Jabil, Flex and Sanmina Corporation. Several smaller companies operating at a regional level also intensify competition. The highly cyclical nature of the semiconductor industry further remains an overhang.

In addition, 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. Although management expects demand to stabilize in the first half of 2025, macroeconomic challenges pose a potent threat.

End Note

As the company scales up production volumes and costs go down, possible uses for silicon photonics are likely to soar across several industries, including automotive, data center and high-performance computing, telecommunications, medical, aerospace and defense. 

The stock delivered a trailing four-quarter average earnings surprise of 7.4%. It has a VGM Score of A. Celestia currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

Riding on a robust earnings surprise history and favorable Zacks Rank, it appears primed for further stock price appreciation despite certain short-term headwinds. Consequently, investors are likely to profit if they bet on this high-flying stock now.

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

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