12.01
We are reiterating our Celestica (CLS-SO) thesis on the back of a day of
marketing with CFO Paul Nicoletti in Central Canada (November 25 & 26,
2009). Nicoletti highlighted that further op. margin leverage (3.5% – 4% vs.
3.2% LQ) is achievable with only modest revenue growth in 2010.
CLS’s Q4 appears to be tracking fine (our estimates are R$1.6B/EPS $0.17)
with both smart phone and enterprise doing a slightly better than
expected. The enterprise segment has recently been experiencing selected
component shortages i.e. Cisco has called out better end markets.
In 2010, some organic revenue growth (6-8%) will be necessary for further
margin improvements. Growth from new customers (enterprise, storage,
smart phones) and tech OEM consolidation are where current opportunities
lie i.e. Cisco – Tandberg, Cienna – Nortel.
We rate CLS an SO. Our price target is $12 and implies a P/E of 11x 2010E
EPS of $0.86 plus the cash per share of $2.96. We argue that 2010 is a
better reflection of CLS earnings power. CLS’s op. performance has been
hitting multi-year highs in margins & ROIC, supporting our valuation target.
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