Opinions
Peter Hodson
Celestica Inc
CLS-T
WEAK BUY
Jul 29, 2014
Stock price when the opinion was issued
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We would be comfortable today as long as an investor has a 3 year+ timeframe to hold. Funamental momentum is very positive and the recent quarter showed an acceleration of growth.
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Lots of investors are taking profits, generally, now that earnings season is over. Needed a strong stomach for this one; in April, was under $80. He can't even recommend writing some calls, as he's been doing that and it's not working ;) He ended up having to buy the calls back, as he didn't want to get called away.
Don't trim. Hold on, and use a stop of around $250.
Have done a super job to be front and centre in data centres, both back and front end. But this is still cyclical. He sold it after a tremendous run, but left money on the table. The valuation is way at the high end around 40x earnings. This has gone from one extreme to another.
Analyst estimates continue to trend higher, sales and earnings growth are strong, and margins are expanding. It trades at a forward earnings multiple of 44X, which is not cheap, but this is a company that is benefiting from the AI revolution and we think management has executed well. At the first sign of a potential slowdown in AI Capex spending, we think these names could get hit, but we also believe it is sitll relatively early in the AI movement. For a long-term hold, we would be comfortable adding here.
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Have done a pretty good job of turning things around. They were in dire straits in the recession when they had overcapacity and their balance sheet wasn’t that great. Have bought back a ton of stock, and are now basically waiting for the economic situation to come to them. This is a later cycle economy stock. When business is so good in the tech world and people need third-party manufacturing that is when they really start to coin. Because they bought back a lot of stock, their earnings leverage will be really good at that point in the cycle. Still a little early for this kind of scenario, but for a 2 or 3 year time frame, you should be okay. Not a bad company.