Celestica Inc Valuation – July 2018 $TSE-CLS

Company Profile (excerpt from Reuters): Celestica Inc., incorporated on September 27, 1996, is a provider of supply chain solutions. The Company operates in electronics manufacturing services business segment. The Company offers a range of services, including design and development, engineering services, supply chain management, new product introduction, component sourcing, electronics manufacturing, assembly and test, complex mechanical assembly, systems integration, precision machining, order fulfillment, logistics and after-market repair and return services. The Company’s products and services serve a range of applications, including servers; networking and telecommunications equipment; storage systems; optical equipment; aerospace and defense electronics; healthcare products and applications; semiconductor equipment, and a range of industrial and alternative energy products.


Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-CLS – July 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $2,199,285,000 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.91 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 131.29% Pass
6. Moderate PEmg Ratio PEmg < 20 13.63 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.25 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.91 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.14 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $1.12
MG Growth Estimate 10.08%
MG Value $32.23
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $16.31
MG Value based on 0% Growth $9.56
Market Implied Growth Rate 2.56%
Current Price $15.33
% of Intrinsic Value 47.57%

Celestica Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.67 in 2014 to an estimated $1.12 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.56% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Celestica Inc revealed the company was trading below its Graham Number of $20.33. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 13.63, which was below the industry average of 53.59, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $7.81.

Celestica Inc performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $7.81
Graham Number $20.33
PEmg 13.63
Current Ratio 1.91
PB Ratio 1.25
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $3,216,115,000
Total Current Liabilities $1,687,662,000
Long-Term Debt $207,320,000
Total Assets $3,848,939,000
Intangible Assets $57,036,000
Total Liabilities $2,095,577,000
Shares Outstanding (Diluted Average) 143,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.51
Dec2017 $0.92
Dec2016 $1.27
Dec2015 $0.58
Dec2014 $0.69
Dec2013 $0.68
Dec2012 $0.55
Dec2011 $0.90
Dec2010 $0.44
Dec2009 $0.25
Dec2008 -$3.87
Dec2007 -$0.06
Dec2006 -$0.76
Dec2005 -$0.24
Dec2004 -$4.69
Dec2003 -$1.62
Dec2002 -$3.09
Dec2001 -$0.41
Dec2000 $1.51
Dec1999 $0.59
Dec1998 -$0.82

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.12
Dec2017 $0.90
Dec2016 $0.84
Dec2015 $0.65
Dec2014 $0.67
Dec2013 $0.63
Dec2012 $0.29
Dec2011 -$0.05
Dec2010 -$0.62
Dec2009 -$1.08
Dec2008 -$1.80
Dec2007 -$1.01
Dec2006 -$1.68
Dec2005 -$2.09
Dec2004 -$2.57
Dec2003 -$1.20
Dec2002 -$0.81

Recommended Reading:

Other ModernGraham posts about the company

Best Stocks Below Their Graham Number – August 2017
5 Undervalued Canadian Stocks for Intelligent Investors – February 2017
15 Best Stocks for Value Investors This Week – 1/14/17
Celestica Inc Valuation – Initial Coverage $TSE:CLS

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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