Celestica(US:CLS) Seeking Alphaยท2024-08-12 12:00Investment Thesis - Celestica's stock has increased by 8% since late April, outperforming the broader U.S. market, supported by robust Q2 earnings [4] - The company achieved a 23% year-over-year revenue growth in Q2 2024, reaching $2.39 billion, and adjusted EPS increased from $0.55 to $0.91 [5][6] - Management's guidance indicates strong momentum in AI and data centers, suggesting continued growth and market share gains [4][10] Financial Performance - Q2 2024 highlights include a non-IFRS operating margin of 6.3%, up 80 basis points year-over-year, and adjusted EPS of $0.91, up 36 cents year-over-year [6][11] - The Connectivity & Cloud Segment (CCS) revenue grew by 51% year-over-year, while the Advanced Technology Segment (ATS) revenue decreased by 11% year-over-year [7][10] - The company's free cash flow remains positive, with a 26.7% adjusted return on invested capital (ROIC) in Q2 2024, compared to 20.0% in Q2 2023 [11] Guidance and Outlook - For Q3 2024, revenue is expected to be between $2.325 billion and $2.475 billion, indicating a potential 17.6% year-over-year growth [13][14] - The full-year revenue outlook for 2024 has been raised from $9.1 billion to $9.45 billion, with adjusted EPS guidance increased from $3.30 to $3.62 [15][16] Competitive Positioning - Celestica's revenue growth and profitability improvements are unmatched by its closest peers in the Electronic Manufacturing Services (EMS) industry, indicating a strong competitive edge [17][22] - The company's valuation ratios remain significantly lower than the sector median, suggesting that the stock is undervalued despite a 130% increase over the last twelve months [23][24] Valuation Analysis - A discounted cash flow (DCF) analysis indicates that Celestica's fair value is approximately $18 billion, significantly higher than its current market cap of $5.47 billion, suggesting a potential upside of 229% [29][30] - Even under conservative growth assumptions, the stock remains undervalued by 55% [29]