Should CLS Stock Be in Your Portfolio After a Three-Month Slump?

Celestica Inc. CLS has plunged 18.4% over the past three months compared with the industry’s decline of 12.5%. It has underperformed its peers, such as Flex Ltd. FLEX and Jabil Inc. JBL. Flex has lost 16.7% and Jabil declined 8.9% over this period.Three-Month CLS Stock Price PerformanceImage Source: Zacks Investment ResearchHigh Operating Expenses Dent CLS’ ProspectsCLS remains plagued by margin woes. Celestica’s 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. Flex is well positioned to address the needs of customers who are looking to leverage the proliferation of Internet of Things (IoT), autonomous/connected cars, artificial intelligence (AI), Industrial automation, augmented & virtual reality (AR/VR), and 5G technologies. Jabil is benefiting from solid demand in key end markets driven by excellent operational execution and skillful management of supply chain dynamics. Apart from this, 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 remain a potent threat.Portfolio Strength Lends Support to CLSNevertheless, with more than 25 years of experience in manufacturing, backed by a simplified and optimized global network, Celestica 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. The company had 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 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. These state-of-the-art products have translated into solid top-line growth in recent years.Image Source: Zacks Investment ResearchCLS Offers Bullish OutlookDespite the short-term slump, Celestica has offered a bullish outlook for 2025. It expects total revenues to be about $10.7 billion, up from the previous projection of $10.4 billion. Non-GAAP operating margin is expected to be 6.9%, up from the prior outlook of 6.7%. Non-GAAP adjusted earnings are expected to be $4.75 per share, up from the previous outlook of $4.42. Adjusted free cash flow is expected to be $350 million, up from the prior view of $325 million.Estimate Revision Trend for CLSEarnings estimates for Celestia for 2025 have moved up 31.3% to $4.78 over the past year, while the same for 2026 has jumped 2.4% to $5.93 since January this year. The positive estimate revision depicts bullish sentiments for the stock.  Image Source: Zacks Investment ResearchEnd NoteWith a diverse portfolio of products that form an integral part of AI applications, Celestica’s remarkable transformation in recent years offers a competitive edge across the broader technology market. The company is well poised for sustained growth over the years, backed by its robust infrastructure investments, solid technology know-how and wide industry experience. 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. Moreover, with improving earnings estimates, the stock is witnessing a positive investor perception.However, with a Zacks Rank #3 (Hold), Celestica appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. High operating expenses and stiff competitive pressure remain potent headwinds for the company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Jabil, Inc. (JBL): Free Stock Analysis Report Flex Ltd. (FLEX): Free Stock Analysis Report Celestica, Inc. (CLS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks