Should Celestica Be in Your Portfolio Post Strong Q4 Earnings?

Core Insights - Celestica, Inc. (CLS) reported strong fourth-quarter 2025 results with adjusted earnings and revenues exceeding Zacks Consensus Estimates, driven by significant growth in the Connectivity & Cloud Solutions (CCS) segment [1][9] Financial Performance - Total revenues in the CCS segment increased by 64% year over year to $2.86 billion, with the Enterprise business revenues rising by 33% and the Communications end market achieving 79% growth [2] - Celestica generated $250.6 million in cash from operations, up from $143.4 million in the previous year, and free cash flow increased by 62.7% year over year to $155.9 million, indicating strong capital management [4] - The company's inventory balance rose to $2.19 billion, an increase of $427 million compared to the prior year, while cash cycle days improved by 8 days to 61 days, reflecting efficient inventory management [5] Strategic Partnerships and Market Position - Celestica is collaborating closely with Google on complex data center hardware, serving as the preferred manufacturing partner for Google's Tensor Processing Unit (TPU), and is expanding its capacity to support the adoption of these systems [3] - The company has outperformed its peers, with its stock increasing by 125.4% over the past year, compared to 74.4% growth in the Electronics - Manufacturing Services industry [10][11] Challenges and Risks - Growth is heavily reliant on AI data center spending by hyperscalers, with significant customer concentration risk as the top three customers account for approximately 63% of total revenues [6] - The Advanced Technology Solutions segment experienced a 1% decline in revenues year over year, and the company faces challenges from foreign exchange fluctuations and geopolitical volatility [7][6] Valuation Metrics - Celestica's shares are currently trading at a premium with a price/earnings ratio of 34.42 for forward 12-month earnings, compared to 23.59 for the industry [13]