Q: Celestica use to trade at a lower pe multiple but with its new focus what might be a more favorable multiple going forward?
5i Research Answer:
CLS traded at a forward P/E of below 10X for years until 2023 when its AI segment began generating significant growth. Its forward P/E has climbed to 24X, and for a company with steady margins and expecting to grow earnings in the 20%+ range for the next couple of years, we believe a forward P/E in the range of 20X to 25X makes sense. A 30X forward multiple could be justified if management guides for higher growth rates and it can execute on expanding its profit margins. Much of this also depends on the sustainability of the AI story and if we eventually witness a CAPEX down cycle for data centers and chips. Overall, we continue to like the name here.