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We came across a bullish thesis on Celestica Inc. (CLS) on Value Investing Subreddit Page by OrangeEveryday. In this article, we will summarize the bulls’ thesis on CLS. Celestica Inc. (CLS)'s share was trading at $89.58 as of March 12th. CLS’s trailing and forward P/E were 24.81 and 18.80 respectively according to Yahoo Finance.
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Celestica Inc. (CLS) operates as a leading provider of electronic manufacturing and design solutions, serving a broad range of industries through its project-based model. Clients approach CLS with specific technological needs, and the company designs and manufactures tailored solutions, reinforcing its reputation as a critical partner in the global supply chain. The company's revenue growth underscores its ability to attract new clients and maintain strong relationships with existing ones, benefiting from the ongoing demand for technological upgrades in an increasingly fast-paced economy. As companies must continuously modernize to remain competitive, CLS is positioned to capitalize on this structural demand, making its services essential for businesses across various sectors.
Despite its strengths, CLS faces notable challenges, primarily stemming from its customer concentration. Over 50% of its clients are U.S.-based, exposing the company to risks associated with high interest rates, which could prompt businesses to delay investments and cut costs. Additionally, CLS’s top five clients contribute 62% of its revenue, meaning the loss of even one major customer could significantly impact its financial performance. Another challenge lies in international expansion, as prospective clients outside the U.S. may be hesitant to engage with CLS due to pricing in USD, particularly when the U.S. dollar is strong against other currencies. Rising procurement costs due to tariffs further compound the issue, as sourcing components from overseas becomes more expensive. While CLS heavily invests in research and development to stay ahead of the curve, the effectiveness of these investments will be crucial in sustaining its competitive edge without undermining profitability.
Despite these risks, the long-term outlook for CLS remains optimistic. The persistent need for technological upgrades ensures that CLS’s services will remain in demand, even amid macroeconomic uncertainties. The company's strong track record, demonstrated by its ability to meet client expectations and deliver consistent bottom-line improvements, reinforces confidence in its ability to navigate challenges. Moreover, Celestica’s reputation for high-quality execution provides it with pricing power, reducing the likelihood of losing key customers to competitors. While rising supply costs remain a concern, strategic hedging can help mitigate this pressure and sustain margins over time.