Why Is Celestica Stock up 46% After Earnings?

Celestica’s consistent focus on strategic positioning, generating free cash flow, and optimizing cost structure could help its stock continue soaring.

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Celestica (TSX:CLS) has started another year with a bang as it has already rallied 64% in 2024 so far to currently trade at $63.70 per share, extending its market cap to $7.5 billion. Since announcing its latest quarterly results on January 29, CLS stock has soared 46%, making it this year’s top-performing TSX stock. During the same period, the TSX Composite benchmark has witnessed minor gains of 1.2%.

Before discussing whether Celestica is still a great buy for long-term investors, let’s take a quick look at some important highlights from its latest earnings report to find out the reasons for its recent rally.

Why Celestica stock has rallied 46% after earnings

If you don’t know it already, Celestica is a Toronto-headquartered that primarily makes electronics and manages supply chains, working in areas like aerospace, defence, health tech, and equipment for semiconductors. It also focuses on communication networks and services for servers and storage, offering design, manufacturing, and testing services.

In the fourth quarter of 2023, Celestica reported a revenue of US$2.1 billion, marking a 4.8% increase from the same quarter of the previous year. Despite the challenging macroeconomic environment and inflationary pressures, this growth could be seen as a clear sign of the company’s ability to expand its market share and solidify its position in the competitive tech manufacturing sector.

In the last quarter, its Connectivity & Cloud Solutions (CCS) segment saw a remarkable 10% YoY (year-over-year) revenue increase, significantly contributing to the overall performance. Meanwhile, the Advanced Technology Solutions (ATS) segment saw a slight 2% YoY dip, yet managed to slightly expand its margin.

Improvement in its profitability from both segments helped Celestica deliver a solid 35.7% YoY increase in its adjusted quarterly earnings to US$0.76 per share, beating Street analysts’ estimates of US$0.68 per share.

Despite a weakness in its ATS segment revenue, its upbeat earnings results, higher margin, and solid performance of the CCS segment could be the primary reasons why Celestica stock has popped up since its latest earnings report came out slightly more than a month ago.

Is CLS stock still a great buy for the long term?

Notably, Celestica has been exceeding Street analysts’ earnings expectations for 18 consecutive quarters, even as macroeconomic uncertainties are haunting most businesses globally.

Over the five years between 2018 and 2023, its revenue has gone up by 20%. More importantly, its adjusted annual earnings have more than doubled (up by 127%) during the same five years, which could be one of the reasons why its share prices have rallied by more than 500% since 2021.

After posting strong 2023 financial results, the manufacturing company expects to generate an adjusted free cash flow of $200 million or more in 2024, showcasing its management’s confidence in sustained growth and operational efficiency.

While the ongoing economic uncertainties might affect Celestica’s growth in the near term, its long-term fundamental outlook remains solid with the help of its focus on strategic positioning, generating positive cash flow, and optimizing its cost structure. Considering these positive factors, I expect Celestica stock to continue outperforming the broader market by a wide margin in the years to come, making it look attractive for long-term investors to consider now.

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.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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