Hook & thesis
Celestica is in the right place at the right time. The company has pivoted into high-performance networking, storage and AI infrastructure through products like the SD6300 platform and is showing the kind of revenue and cash-flow characteristics that justify a re-rating. At $308.10 the stock sits below its 52-week high of $363.40 but well above last year’s trough, creating a trade window where accelerating AI demand and an active buyback program can drive multiple expansion.
My thesis: buy at $308.10 with a clear stop at $270 and a target of $360. The core logic is simple: Celestica is generating meaningful free cash flow ($398.2M), has return-on-equity of ~35.3%, and operates with manageable leverage (debt-to-equity 0.39). If AI infrastructure orders continue, revenue implied by the current price-to-sales and market cap supports upside to the prior highs and beyond. This is a long-term trade (180 trading days) sized for an investor willing to hold through execution risk and macro noise.
What the company does and why the market should care
Celestica is a global supply-chain and electronics manufacturing services provider with two primary segments: Advanced Technology Solutions (ATS) covering aerospace, health tech and industrial; and Connectivity and Cloud Solutions (CCS) covering enterprise communications, telecommunications, servers and storage. The CCS segment is the clearest direct beneficiary of the AI infrastructure buildout. The SD6300 platform announced earlier this year is explicitly aimed at high-density storage and enterprise/AI applications, a fast-growing part of customer capex.
Investors should care because the company sits at the crossroads of three powerful trends: 1) hyperscaler and enterprise AI spending on servers and storage; 2) a secular re-shoring / regionalization of complex manufacturing; and 3) corporate capital returns via buybacks. These drivers are already visible in recent company actions - product launches and the Normal Course Issuer Bid approved in early 2026 - and in institutional interest reported in public updates.
Key financial and market facts (useful anchors)
- Current price: $308.10.
- Market cap: roughly $37.6 billion.
- Trailing EPS (reported): $6.24 giving a P/E around ~43x (snapshot P/E ~42.95).
- Price-to-sales: ~3.13x implying revenue roughly $12.0 billion on a market-cap basis.
- Enterprise value: ~$35.8 billion; EV/EBITDA: ~32.0x.
- Free cash flow (most recent): $398.2 million.
- Balance-sheet and profitability: ROE ~35.3%, ROA ~10.85%, debt/equity ~0.39, current ratio ~1.47.
- Technicals: 50-day SMA ~$308.90, RSI ~51 (neutral), 52-week range $58.05 - $363.40.
Why the numbers support an upside
At first glance the valuation looks rich if you only focus on P/E or EV/EBITDA - those multiples are elevated. But two countervailing points make a long here reasonable: (1) Celestica's profitability metrics are strong for a hardware/EMS player - ROE north of 35% and positive free cash flow into the hundreds of millions; (2) the company is being re-positioned into higher ASP, higher margin AI/storage customers. If revenue mix shifts to higher-margin AI infrastructure and capacity utilization improves, the numerator of valuation (earnings and FCF) can grow faster than the denominator - yielding multiple compression rather than expansion required to hit targets.
Catalysts to drive the trade
- AI infrastructure product adoption - early wins and design cycles for the SD6300 and similar offerings. Product acceptance and volume ramps would directly lift revenue and margins.
- Normal Course Issuer Bid (NCIB) / buybacks - the accepted buyback reduces float and supports EPS even without massive top-line changes.
- Institutional positioning - visible buying from funds and continued inclusion in tech-focused portfolios increases bid-side liquidity and can compress the P/E gap with pure-play AI suppliers.
- Better-than-feared macro or enterprise capex recovery - if customers pull forward server/storage purchases, Celestica's order book and utilization could improve quickly.
- Strong quarterly results or raised guidance - any sequential improvement in free cash flow or margin guidance would re-rate EV/EBITDA toward peers.
Trade plan (actionable)
| Entry | Target | Stop | Horizon | Risk Level |
|---|---|---|---|---|
| $308.10 | $360.00 | $270.00 | long term (180 trading days) | medium |
Rationale: Enter at the current price of $308.10. The $360 target sits just under the 52-week high of $363.40 and represents a realistic re-test of the prior peak if AI-driven revenue accelerates and buybacks continue. The stop at $270 caps downside near a level that represents a roughly 12% drawdown from entry and beneath the 50-day SMA - a clear technical level that, if broken decisively, suggests the thesis is failing.
Plan execution: position size should be set so the maximum loss to the portfolio at stop is acceptable (e.g., 1-3% of portfolio value). Consider scaling: initiate 60% of allocation at entry and add the remaining 40% on a technical hold or on a pullback toward $290, provided no fundamental deterioration is evident.
Risks and counterarguments
- Valuation is already rich. P/E near the low-40s and EV/EBITDA ~32 suggest the market already expects strong growth. If AI adoption is slower than expected or margin mix doesn’t improve, multiples can contract and drive downside.
- Execution risk on product ramps. Moving from design wins to volume production in complex server/storage hardware is non-trivial; delays or quality issues could push out revenue recognition and pressure margins.
- Concentration of demand. A meaningful share of AI spend is concentrated in hyperscalers; any shift in their procurement strategy or vendor selection could have outsized effects on Celestica’s order book.
- Macroeconomic or capex slowdown. If enterprise and cloud customers pull back on capex, demand for servers and storage could weaken quickly, compressing revenue and FCF.
- Competitive pressure and price erosion. Large EMS peers and captive OEMs could compete aggressively on pricing as they chase AI-related volumes, pressuring Celestica's margins.
Counterargument to my thesis: You could reasonably argue the market is pricing Celestica as a higher-margin systems supplier already and that the company simply cannot sustain the multiple without consistent, double-digit EPS growth. If future quarters show modest growth and FCF stalls, paying 40+ times earnings will prove fragile and the stock could fall back toward its intrinsic hardware-manufacturer peers.
What would change my mind
- I would close this long and flip neutral/short if Celestica reports a clear slowdown in AI-related orders, misses FCF expectations materially (e.g., by more than 20%) or announces canceled customer programs.
- If buybacks stop or management signals an inability to convert design wins into volume shipments, that would also invalidate the thesis.
- On the positive side, sustained sequential revenue growth, improving gross margins and raised guidance would reinforce the thesis and could justify a price target above $360.
Bottom line
Celestica at $308.10 is a tactical long with a clear risk/reward. The company checks several boxes: growing exposure to AI infrastructure, a credible product roadmap (SD6300), solid free cash flow and an active buyback program that helps EPS mechanically. The trade is not without risk - valuation is elevated and execution matters - but with a disciplined stop at $270 and a target of $360 over the next 180 trading days this setup favors a measured long position for investors who want to play AI hardware indirectly without owning pure-play chipmakers.
Key items to watch over the next 90 days
- Quarterly results and commentary on SD6300 customer momentum (watch the company’s Q4 call and near-term customer announcements).
- NCIB execution rate and any incremental buyback cadence announcements.
- Free cash flow and margin trends to see if higher-margin AI workloads are materializing in the P&L.
- Order book visibility and lead times from key hyperscaler customers.
Trade summary: Long CLS at $308.10, target $360.00, stop $270.00, horizon long term (180 trading days). Risk level: medium.