cls 2010 Growth, Operating Leverage And M&A

admin — Tue, 01 Dec 2009 18:52:24 +0000

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.

Celestica Inc. Efficiency And Profitability Will Reward Shareholders

admin — Sun, 26 Jul 2009 22:50:35 +0000

CLS continued to demonstrate its ability to report strong results in a
challenging market. Q2 EPS and Q3 guidance came in higher than expected
(+$0.01). Our thesis remains unchanged and we expect earnings leverage
to play out as revenue growth returns in H2/09 and 2010.

In Q2/09, CLS delivered rev. of $1.4B (-5% q/q). GM was 7.3%, op. margin
was 2.7% (target 3%-3.5%), leading to EPS of $0.11 (est. $0.10). Storage
(new programs) fared better than other markets, while Consumer was weak
(program transitions). End markets look to be stabilizing.

The Q3/09 outlook was for rev. to be up 7% q/q, and for EPS to benefit
from CLS’s strong operational performance. We have lowered our rev. est.
to $1.5B (-$50MM) but EPS is $0.14 (+$0.01). Our F09 rev. forecast has
also declined to $5.97B, but our EPS has increased to $0.52 (+$0.02).

TSX Commentary » Celestica Inc.

cls 2010 Growth, Operating Leverage And M&A

Celestica Inc. Efficiency And Profitability Will Reward Shareholders