Celestica expects revenue to grow 90% in 2027, while gross margin and cash flow face pressure

Why is the 2027 outlook drawing more attention than the quarter’s results?

Celestica expects 2027 revenue to reach 40 billion US dollars, up 90% year over year; that is 21 percentage points faster than the company’s expected 69% revenue growth for 2026.
The company attributes the growth to continued AI infrastructure expansion and demand from hyperscale cloud providers and frontier AI labs. Citi believes customer demand also indicates that 2028 revenue could be significantly higher than in 2027.
The company also expects its adjusted operating margin in 2027 to rise 0.6 percentage points year over year to 9%, indicating that it expects revenue expansion to be accompanied by an improvement in operating margin.

Revenue for the quarter ended September 2026 was 5.8 billion US dollars, up 83% year over year. That exceeded the FactSet market consensus growth rate of 71% and the company’s prior guidance range of 64%–74%.
CCS revenue was 4.9 billion US dollars, up more than 100% year over year. Within that, HPS revenue was approximately 2.3 billion US dollars, up 70% year over year, and its operating margin was 8.9%, up 0.2 percentage points sequentially. ATS revenue was 960 million US dollars, up 23% year over year.
Adjusted earnings per share were 3.30 US dollars, above the market consensus of 2.97 US dollars. Citi believes stronger revenue and expense control offset the effect of weaker gross margin.

Gross margin in the September quarter fell 0.3 percentage points sequentially and 0.5 percentage points year over year; the company also cut its 2026 free cash flow guidance.
Citi is focused on the pressure on free cash flow from the working capital investment needed for expansion, as well as the reasons for the decline in gross margin, component supply and other investments required to scale the business.
Customer concentration is another constraint: three major customers accounted for 35%, 17% and 14% of third-quarter revenue, respectively, with the largest customer’s share above 32% in the second quarter. Citi lists changes to or losses of major customer programs, competition and pricing pressure as downside risks.

The company’s revenue guidance for the quarter ending December 2026 is 6.275 billion to 6.575 billion US dollars, with the midpoint up 76% year over year. This is broadly in line with market expectations of 6.4 billion US dollars and growth of 75%.
The company expects 2026 revenue of 21 billion US dollars and adjusted earnings per share of 11.55 US dollars, above its previous expectation of 11.30 US dollars and the market consensus at the time of 11.16 US dollars.
Citi assigns a buy rating and a target price of 415 US dollars, valuing the stock at 21 times 2027 earnings; the closing price on 26 October 2026 listed in the report was 246.65 US dollars.