CLS Rides on Steady Cash Flow Growth: Will the Momentum Persist?

Core Insights - Celestica, Inc. (CLS) reported an operating cash flow of $126.2 million for the third quarter, an increase from $122.8 million year-over-year, with total cash flow for the first nine months of 2025 reaching $408.9 million, up from $330.5 million in 2024 [2][9] - The company experienced a 43% increase in revenues from the Connectivity & Cable Solutions (CCS) segment, driven by demand for advanced networking products, particularly 400G and 800G switches, fueled by AI investments [3][9] - Celestica raised its free cash flow guidance for 2025 to $425 million, up from $400 million, supported by strong revenue growth and a stable cash cycle [5][9] Financial Performance - The inventory balance for Celestica was $2.05 billion, an increase of $226 million year-over-year and $129 million from the previous quarter, with cash cycle days improving to 68 days from 70 days in the second quarter of 2025 [4] - Free cash flow for the third quarter was $88.9 million, compared to $76.8 million in the same quarter last year, with capital expenditure at $37 million, representing 1.2% of revenues, below the expected range of 1.5-2% [5] Competitive Landscape - Competitors such as Sanmina Corporation reported a significant increase in cash flow, generating $199.1 million from operating activities in the fourth quarter of fiscal 2025, compared to $51.9 million the previous year, driven by growth in Communications Networks and Cloud Infrastructure [6] - Jabil, Inc. also showed strong performance with $323 million in net cash from operating activities in the first quarter of fiscal 2026, up from $312 million a year ago, and a free cash flow of $272 million compared to $226 million the previous year [7] Valuation and Estimates - Celestica's shares have increased by 223.5% over the past year, outperforming the industry growth of 105.1% [8] - The company trades at a forward price-to-earnings ratio of 36.51, significantly higher than the industry average of 24.37 [10] - Earnings estimates for 2025 have remained stable over the past 60 days, while estimates for 2026 have seen a decrease [11]