Is Now the Prime Time to Buy Shares of Celestica Inc.?

Celestica Inc.’s (TSX:CLS)(NYSE:CLS) stock jumped over 4% following the release of its first-quarter earnings results and two other announcements. Will the rally continue?

| More on:
The Motley Fool

Celestica Inc. (TSX:CLS)(NYSE:CLS), a global leader in the delivery of end-to-end product lifecycle solutions, released first-quarter earnings results, announced a share repurchase program, and announced a deal with Honeywell International Inc. (NYSE:HON) all on the morning of April 21, and its stock responded by rising more than 4% in the trading session that followed. Let’s take a closer look at all of this information to determine if we should consider buying in to the rally, or if we should wait for it to subside.

The weak first-quarter results

Here’s a summary of Celestica’s first-quarter earnings results compared with its results in the same period a year ago. All figures are in U.S. dollars.

Metric Q1 2015 Q1 2014
Adjusted Earnings Per Share $0.19 $0.26
Revenue $1.30 billion $1.31 billion

Source: Celestica Inc.

Celestica’s adjusted earnings per share decreased 26.9% and its revenue decreased 1.1% compared with the first quarter of fiscal 2014. The company noted that these weak results could be attributed to a “challenging demand environment,” but it is very important to note that it had anticipated this, as its outlook on the first quarter called for revenue in the range of $1.275-1.375 billion and adjusted earning per share in the range of $0.18-0.24, both of which it achieved.

Here’s a quick breakdown of eight other notable statistics and updates from the report compared to the year-ago period:

  1. Adjusted gross profit increased 1.3% to $95.8 million
  2. Adjusted gross margin expanded 20 basis points to 7.4%
  3. Adjusted operating profit decreased 1.7% to $40.5 million
  4. Adjusted operating margin remained unchanged at 3.1%
  5. Adjusted return on invested capital improved 70 basis points to 16.8%
  6. Adjusted free cash flow of $22 million, compared to an adjusted cash use of $16.2 million in the year-ago period
  7. Repurchased 6.1 million of its subordinate voting shares for approximately $69.8 million
  8. Diluted shares outstanding decreased 4.5% to 174.3 million

The rally-igniting announcements

Even though Celestica’s first-quarter results were weak, the sentiment turned positive when the company announced its intention to repurchase $350 million worth of its subordinate voting shares and announced that it reached an agreement with Honeywell Aerospace, the world’s largest manufacturer of aircraft engines, to manage the assembly and test operations at its facility in Mississauga, Ontario, Canada. The new deal with Honeywell strengthens the relationship between the two companies and could lead Celestica to record revenues and profits over the next several years.

Should you be a buyer of Celestica today?

I think this is only the beginning of a sustained rally higher because Celestica’s stock still trades at attractive valuations, including just 14.5 times fiscal 2015’s estimated earnings per share of $1.01 and only 13.2 times fiscal 2016’s estimated earnings per share of $1.11, both of which are inexpensive compared to its five-year average price-to-earnings multiple of 19.9. I also think these earnings estimates are conservative when you consider the new deal with Honeywell.

With all of the information provided above in mind, I think Celestica represents one of the best long-term investment opportunities in the market today. Foolish investors should take a closer look and strongly consider beginning to scale in to long-term positions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

More on Tech Stocks

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Business man on stock market financial trade indicator background.
Tech Stocks

1 Growth Stock Down 50 Percent to Buy Right Now

There are plenty of growth stocks in the market worth considering, but Shopify (TSX:SHOP) looks like one of the best…

Read more »

Woman has an idea
Tech Stocks

Prediction: 1 Stock That Could Trounce the Market 

The TSX has been favouring tech stocks, but not this one. However, it has the potential to trounce the market…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Businessman holding AI cloud
Tech Stocks

AI Will Transform Everything: Investors, Be Early Adopters and Buy These 3 Stocks

Investors looking to invest in companies doing big things in AI should consider these three stocks for their portfolios.

Read more »

stock research, analyze data
Tech Stocks

Forget Shopify: These Unstoppable Stocks Are Better Buys Today 

Should you consider buying Shopify stock while rivals consider a buyout or should you go for stocks with a stronger…

Read more »

A colourful firework display
Tech Stocks

2 Potentially Explosive Stocks to Buy in March

These two growth stocks are destined for many more years of market-crushing returns.

Read more »

edit CRA taxes
Tech Stocks

TFSA Millionaires Are Learning They Can Still Be Taxed

If you day trade stocks like Shopify (TSX:SHOP) in a TFSA, you may be taxed.

Read more »