Celestica raises its growth outlook: 2027 revenue guidance of 40 billion dollars, with expansion also set to consume cash
Third-quarter revenue and earnings per share both beat expectations. Bernstein believes the scale of the OpenAI project deployment could bring greater growth, but the company's 2027 margin guidance is below the firm's forecast, and capacity expansion is expected to turn free cash flow negative.
Original source：BernsteinFirst published on Unhidea：Original source date：
Key takeaway
Bernstein believes Celestica's 2027 guidance leaves room for AI project deployment, but higher revenue depends on capacity ramp-up and customer deployments, while the company faces pressure from expansion costs and working capital needs.
Where did the third-quarter beat come from?
Celestica's third-quarter revenue was 5.83 billion dollars, up 83% year over year and 24% quarter over quarter, above the consensus estimate of 5.44 billion dollars; earnings per share were 3.30 dollars, also above the consensus estimate of 2.97 dollars.
Demand from large AI cloud customers drove networking revenue up 68% and computing and storage revenue up 242%. Connectivity and Cloud Solutions (CCS) revenue was 4.87 billion dollars, above the consensus estimate of 4.4 billion dollars, and accounted for 84% of total company revenue.
Free cash flow was 116 million dollars, better than Bernstein's forecast of an outflow of 149 million dollars but below the consensus forecast of an inflow of 231 million dollars.
Why is 2027 revenue guidance strong while margins are below Bernstein's expectations?
The company guided for 2027 revenue of 40 billion dollars, up approximately 90% year over year, close to Bernstein's prior estimate of 40.03 billion dollars and above the consensus estimate of 35.87 billion dollars. CCS is expected to grow 110%, and Advanced Technology Solutions (ATS) approximately 10%.
The comparison for profit guidance is different: the company expects an operating margin of 9.0% and earnings per share of 21.50 dollars, below Bernstein's previous estimates of 9.7% and 24.19 dollars respectively, but both above consensus.
Production-line ramp-up will skew revenue toward the second half; the company also expects 2027 capital expenditure to reach 1.5 billion to 2 billion dollars, above Bernstein's previous estimate of 1.1 billion dollars, and expects net cash consumption that year, with free cash flow returning to positive in 2028.
Why does Bernstein see further revenue upside?
The firm believes the company's guidance takes execution risk into account for deployment of the OpenAI Jalapeno project; if the 1.3 gigawatts of deployment in 2027 discussed by Broadcom is fully realized, revenue from the project could reach approximately 12 billion dollars.
The link in this assessment is supply-chain stocking: at approximately 4300 racks per gigawatt and 128 custom chips per rack, 1.3 gigawatts would require approximately 720 thousand chips, close to the planned supply-chain volume of 700 thousand chips that the firm has heard about.
Based on project deployments and growth in other businesses, Bernstein's model forecasts total 2027 revenue of approximately 47 billion dollars. Management said that, counting only projects already secured, customer demand forecasts for 2028 are already significantly above the 2027 revenue outlook; the company has not yet issued revenue guidance for 2028.
How will expansion, competition and valuation affect the assessment?
Management plans to increase capacity from 160 megawatts earlier in 2026 to 500 megawatts in 2027. Using the top end of the capital expenditure range and assuming working capital days rise from 49.5 days in the third quarter to 60 days in 2027, Bernstein estimates negative free cash flow of 142 million dollars in 2027; the company's cash balance is approximately 3 billion dollars.
Customers bringing in second suppliers and competition from contract manufacturers will affect market share and margins. Bernstein believes Google continues to assign higher-value racks to Celestica, while more mature projects increasingly go to second suppliers; the firm considers delivery speed an important factor in customers' supplier selection.
Bernstein maintained its outperform rating and changed its target price from 520 dollars to 495 dollars, based on a multiple of 13 times its 2028 earnings-per-share forecast of 38 dollars. The firm believes a recovery in the valuation multiple may depend on improved sentiment across the broader AI market.
