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Celestica Focuses on Margin Expansion: Can it Sustain This Momentum?
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Key Takeaways
CLS is expanding margins by shifting to high-value, engineering-intensive offerings.
CLS benefits from strong demand in AI and cloud via its Connectivity & Cloud Solutions segment.
Hardware Platform Solutions boost pricing power with complex servers and networking products.
Over the past few years, Celestica Inc. (CLS - Free Report) has been increasingly focusing on margin expansion driven by a structural shift in its business model. The company is leaning toward high-value, engineering-intensive offerings, resulting in sustained profitability improvements. Gross margins have expanded to the low-teens range in recent periods, marking a significant departure from its historical baseline and signaling a fundamental change in earnings quality.
The primary driver behind this margin expansion has been its Connectivity & Cloud Solutions segment, particularly in areas tied to hyperscale data centers and artificial intelligence (AI) infrastructure. Within this segment, Celestica has increased its exposure to Hardware Platform Solutions, which includes servers, storage systems and high-performance networking equipment. These products are inherently more complex and command better pricing power compared to traditional electronics manufacturing services (EMS) offerings. As hyperscalers continue to ramp investments in AI and cloud infrastructure, Celestica has benefited from both strong demand and a richer product mix, enabling it to capture higher margins while scaling revenues.
The proliferation of AI workloads, the expansion of cloud computing infrastructure, and the increasing complexity of networking hardware all play to Celestica’s strengths in design, integration, and advanced manufacturing. As the company deepens its relationships with hyperscale customers and embeds itself further into their supply chains, it gains not only volume visibility but also enhanced pricing power and strategic relevance. This has enabled a seamless transition from a low-margin contract manufacturer to a high-value technology solutions provider.
Other EMS Firms Focusing on Margin Improvements
Jabil Inc. (JBL - Free Report) is repositioning toward higher-margin end markets by moving its portfolio away from commoditized manufacturing into areas such as healthcare, automotive electronics and cloud infrastructure. This shift is supported by investments in materials science, design capabilities, and vertical integration, allowing Jabil to capture more value across the supply chain. Consequently, Jabil has achieved steady operating margin improvement into the mid-single-digit range, placing it among the more profitable large-scale EMS players.
Flex Ltd. (FLEX - Free Report) has been focusing on portfolio optimization and redefining its business mix by exiting lower-margin programs and emphasizing sectors such as cloud, automotive, and industrial solutions. Its partnerships with hyperscalers and companies like NVIDIA and Amazon have positioned it to benefit from the AI infrastructure cycle. The company primarily aims for incremental margin improvement through scale and efficiency.
CLS’ Price Performance, Valuation and Estimates
Celestica has surged 255.5% over the past year compared with the industry’s growth of 128.3%.
Image Source: Zacks Investment Research
From a valuation standpoint, CLS trades at a forward price-to-sales ratio of 1.73, above the industry tally of 0.86.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for CLS’ earnings for 2026 has increased 7.6% over the past 60 days to $8.83.
View the Zacks #1 Rank List
Image: Bigstock
Celestica Focuses on Margin Expansion: Can it Sustain This Momentum?
Key Takeaways
Over the past few years, Celestica Inc. (CLS - Free Report) has been increasingly focusing on margin expansion driven by a structural shift in its business model. The company is leaning toward high-value, engineering-intensive offerings, resulting in sustained profitability improvements. Gross margins have expanded to the low-teens range in recent periods, marking a significant departure from its historical baseline and signaling a fundamental change in earnings quality.
The primary driver behind this margin expansion has been its Connectivity & Cloud Solutions segment, particularly in areas tied to hyperscale data centers and artificial intelligence (AI) infrastructure. Within this segment, Celestica has increased its exposure to Hardware Platform Solutions, which includes servers, storage systems and high-performance networking equipment. These products are inherently more complex and command better pricing power compared to traditional electronics manufacturing services (EMS) offerings. As hyperscalers continue to ramp investments in AI and cloud infrastructure, Celestica has benefited from both strong demand and a richer product mix, enabling it to capture higher margins while scaling revenues.
The proliferation of AI workloads, the expansion of cloud computing infrastructure, and the increasing complexity of networking hardware all play to Celestica’s strengths in design, integration, and advanced manufacturing. As the company deepens its relationships with hyperscale customers and embeds itself further into their supply chains, it gains not only volume visibility but also enhanced pricing power and strategic relevance. This has enabled a seamless transition from a low-margin contract manufacturer to a high-value technology solutions provider.
Other EMS Firms Focusing on Margin Improvements
Jabil Inc. (JBL - Free Report) is repositioning toward higher-margin end markets by moving its portfolio away from commoditized manufacturing into areas such as healthcare, automotive electronics and cloud infrastructure. This shift is supported by investments in materials science, design capabilities, and vertical integration, allowing Jabil to capture more value across the supply chain. Consequently, Jabil has achieved steady operating margin improvement into the mid-single-digit range, placing it among the more profitable large-scale EMS players.
Flex Ltd. (FLEX - Free Report) has been focusing on portfolio optimization and redefining its business mix by exiting lower-margin programs and emphasizing sectors such as cloud, automotive, and industrial solutions. Its partnerships with hyperscalers and companies like NVIDIA and Amazon have positioned it to benefit from the AI infrastructure cycle. The company primarily aims for incremental margin improvement through scale and efficiency.
CLS’ Price Performance, Valuation and Estimates
Celestica has surged 255.5% over the past year compared with the industry’s growth of 128.3%.
Image Source: Zacks Investment Research
From a valuation standpoint, CLS trades at a forward price-to-sales ratio of 1.73, above the industry tally of 0.86.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for CLS’ earnings for 2026 has increased 7.6% over the past 60 days to $8.83.
Image Source: Zacks Investment Research
Celestica currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.