Hook / Thesis
I tripled my Celestica position over the past 12 months and I am adding more now. The reason is simple: the story has shifted from hope to execution. Revenues are up quarter-over-quarter, gross margins and operating income are expanding, and operating cash flow is consistently positive. At today's price (~$303.87 on 12/30/2025), the market is assigning a premium to Celestica's connectivity & cloud exposure and its ability to capture hyperscaler AI infrastructure work - and I think that premium has room to run, albeit with execution risk.
What the company does and why it matters
Celestica is an end-to-end supply chain and electronics manufacturing services provider with two reporting segments: Advanced Technology Solutions (ATS) - which includes aerospace & defense, industrial and capital equipment - and Connectivity & Cloud Solutions (CCS) - where the company generates the majority of revenue. The CCS exposure is the key lens for investors: cloud servers, storage, and networking equipment remain the most direct way suppliers benefit from hyperscaler buildouts and AI-driven data-center growth. As capital intensity and system complexity rise, OEMs lean on scalable EMS partners. Celestica is winning that work.
Recent results - the evidence
Quarterly results show accelerating scale and margin leverage. Highlights from the quarter ended 09/30/2025 (filed 10/27/2025):
- Revenues: $3.194 billion (Q3 FY2025).
- Gross profit: $416.1 million (Q3), up from $371.0 million in Q2 and $273.9 million in Q1.
- Operating income: $325.0 million (Q3) versus $272.5 million (Q2) and $128.8 million (Q1).
- Net income attributable to parent: $267.8 million; diluted EPS about $2.31 (Q3).
- Operating cash flow: $126.2 million in Q3; the company generated $152.4 million in Q2 and $130.3 million in Q1 - consistent positive cash from ops across the year so far.
- Balance sheet (09/30/2025): current assets $5.1428 billion, inventory $2.0467 billion, current liabilities $3.5023 billion, equity $2.0286 billion.
Put simply: revenue and gross margin improved each quarter in FY2025 through Q3, translating into higher operating income and steady operating cash flow. Financing activities show consistent outflows (-$213.9M in Q1, -$106.6M in Q2, -$96.8M in Q3), which suggests the company is returning capital and/or paying down debt instead of hoarding cash. Net cash flow for Q3 was slightly negative (-$7.9M) once investing and financing are included, but operating cash remains healthy.
Valuation framing - how expensive is the stock?
The dataset doesn't provide a reported market capitalization line, so I estimate it using the most recent trade and the company's diluted shares. Using the last trade price of $303.87 and diluted average shares of ~115.9 million (reported), implied market capitalization is roughly $35.2 billion (303.87 x 115.9M = ~$35.2B). That's an estimate and should be treated as such, but it gives us a working number to evaluate valuation.
Compare that implied market cap to the business scale: three reported quarters of FY2025 revenue sum to roughly $8.736B (Q1: $2.649B + Q2: $2.893B + Q3: $3.194B). Annualizing that run-rate (conservative) suggests LTM revenues in the neighborhood of $11-12B if Q4 is similar to Q3. That implies a market cap / revenue of roughly 2.9x to 3.2x on an annualized basis. For an EMS/CCS-focused company with hyperscaler exposure and improving margins, that multiple isn't outrageous, but it does price in strong continued execution and meaningful share gains.
Why the market should care
Investors should care because Celestica sits at an inflection where higher-margin CCS work (servers/storage) and ATS pockets (defense/aero) can lift the company's blended margin profile and free cash flow. The revenue and margin progression across the last three quarters is the clearest signal: gross profit rose from $273.9M in Q1 to $416.1M in Q3 while operating income nearly tripled from ~$129M to $325M over the same period. If Celestica sustains these trends, the implied valuation becomes easier to defend.
Trade idea - actionable plan
I am long and adding. This is a position trade for investors who can stomach earnings-season and backlog risks. My tactical plan:
| Action | Price zone | Rationale |
|---|---|---|
| Initial entry | $300 - $315 | Buy into momentum, average cost flexibility. Current market (~$303.87) is within this zone. |
| Add-on / staggered buy | $270 - $290 | Dip-buy zone: aligns with prior support and offers lower risk if demand notices slow. |
| Stop | $240 | Invalidates broader momentum and preserves capital (about 20-23% below entry). |
| Near-term target | $380 | Captures continuation towards recent cycle highs and a reasonable upside given margin expansion. |
| Medium-term target | $480 | Represents upside if Celestica sustains higher CCS mix, beats guidance, and continues buybacks / capital discipline. |
Position sizing guidance: treat this as a medium-risk trade. For retail portfolios, I would size initial exposure at 1-3% of portfolio and use add-ons to scale to 3-6% if thesis holds (sized to risk tolerance). Use the stop above to limit downside on the core tranche.
Catalysts to watch (2-5)
- Hyperscaler contract announcements or design wins that explicitly increase server/storage production volumes with Celestica.
- Quarterly results ahead of expectations showing continued gross margin expansion and improving operating income (next quarterly filing after 10/27/2025).
- Accelerating free cash flow or clearer capital return policy - consistent negative financing cash outflows in 2025 suggest management is deploying cash; confirmation of share buybacks or reduced net debt would be a positive catalyst.
- Order backlog updates indicating multi-quarter production ramps for AI infrastructure (public disclosures or conference commentary).
Risks and counterarguments
Every trade has downsides. Key risks here:
- Backlog / execution risk: EMS work is lumpy - a single large program delay or OEM design change can compress near-term revenue and push margin expectations out. The Q3 improvement is encouraging, but sustaining it requires flawless execution across supply chain tiers.
- Concentration risk from hyperscaler demand: A meaningful share of CCS revenue is tied to a handful of hyperscalers. Reduced capex or a shift in hyperscaler supplier mix would hit Celestica disproportionately.
- Inventory and working-capital volatility: Inventory sits at $2.0467B as of 09/30/2025; if demand softens, markdowns or excess inventory could impair gross margins and cash flow.
- Valuation risk - priced for perfection: My implied market cap of roughly $35.2B (based on last trade and ~115.9M diluted shares) implies the market expects continued strong execution. Any miss could lead to sharp derating.
- Macroeconomic / supply-chain shocks: Tariffs, logistics bottlenecks, or rapid component cost inflation could compress margins and delay deliveries.
Counterargument
One strong counterargument is that the stock already reflects most of the good news. The implied market cap / revenue multiple is elevated relative to a traditional EMS multiple, and a single quarter of lower-than-expected hyperscaler demand or a program delay could erase a lot of value quickly. If you believe hyperscaler demand will plateau (not continue to grow materially) or if Celestica fails to defend market share against larger EMS competitors, then current levels are vulnerable. That's why I size the position modestly and place a clear stop.
What would change my mind
I will materially reduce or exit the position if any of the following happen:
- Q4 (next reported quarter) shows a material sequential decline in revenue or gross profit despite stable demand signals from hyperscalers.
- Operating cash flow weakens meaningfully while inventory rises without a corresponding increase in backlog - a sign of demand weakening or execution translating into working-capital strain.
- Management explicitly warns of lost design wins or contract cancellations with hyperscaler customers.
- The stock breaches and stays below $240 on high volume, which would invalidate current momentum and our risk framework.
Closing thoughts
Celestica has moved from a turnaround narrative to a growth-and-cash-conversion story over the past three reported quarters. Revenues rose to $3.194B in Q3 (09/30/2025), gross profit expanded to $416.1M and operating income climbed to $325M, while operating cash flow stayed positive. Those are the concrete numbers that back my position.
I have already realized a >3x gain on earlier purchases, but the business fundamentals - higher-margin CCS work, steady operating cash generation, and capital deployment evident in negative financing cash flow - justify adding here with a disciplined plan. The key is sizing, a clear stop ($240), and staging add-ons into dips ($270-$290). If you buy, treat this as a medium-risk overweight and monitor backlog, cash conversion, and quarterly margin trajectory closely.
Disclosure: This is not financial advice. The trade plan above is my personal stance and intended as a starting point for investors to build their own risk-managed approach.