Citi initiates coverage on Celestica stock with Neutral rating

Investing.com - Citi initiated coverage on Celestica (NYSE:CLS), currently trading at $160.12 with a market capitalization of $18.4 billion, with a Neutral rating and a $172.00 price target on Monday. According to InvestingPro analysis, the stock appears to be trading above its Fair Value.

The research firm noted that Celestica stock has risen 73.5% year-to-date and an impressive 183.4% over the past year, reflecting strong share gains in the AI back-end switch market to over 30% on early 800G hyperscale greenfield investments. InvestingPro data shows the company maintains a "GOOD" overall financial health score of 3.0 out of 5, with particularly strong momentum metrics.

Citi believes the 800G ramp is still in early stages and expects major share shifts from branded vendors like Arista and Nvidia (NASDAQ:NVDA) long-term, while suggesting Celestica’s high-20s P/E multiple could sustain in the mid-term.

The firm cautioned that Celestica’s multiple contracted once white box share of the 400G market declined after the initial ramp, potentially signaling similar future patterns.

Citi’s $172 price target is based on approximately 28x P/E multiple, in line with Celestica’s closest AI-exposed EMS peer Fabrinet (NYSE:FN), applied to the firm’s fiscal year 2026 EPS estimates, which align with broader market expectations for calendar years 2025 and 2026.

In other recent news, Celestica reported first-quarter earnings for 2025 that exceeded analyst expectations, with adjusted earnings per share at $1.20, surpassing the estimate of $1.12. Revenue reached $2.65 billion, a 20% year-over-year increase, beating the consensus forecast of $2.56 billion. Despite this strong performance, Celestica’s stock experienced a decline as investors focused on guidance that was only modestly above consensus. The company raised its full-year 2025 revenue forecast to $10.85 billion and increased its adjusted EPS guidance to $5.00.

Stifel analysts maintained a Buy rating on Celestica, setting a price target of $150, following the company’s robust financial performance. BMO Capital Markets adjusted its outlook, initially lowering the price target to $118 due to industry trends, before later raising it to $130 based on positive investor meetings and Celestica’s competitive position. Both firms cited Celestica’s significant contract wins, including a 1.6T deal, as evidence of the company’s strong market presence.

Celestica’s Connectivity & Cloud Solutions segment saw a notable 28% year-over-year revenue increase, driven by high demand for networking switches. The company is also expanding into the pluggable optical transceiver market, which is expected to contribute to its future growth. These developments have led Celestica to provide a second-quarter guidance that surpasses consensus expectations.

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