Celestica targets $40 billion in 2027 sales as cash flow forecast falls

Celestica designs and builds hardware that other companies sell or run. Most of its business sits in its cloud and networking segment, which serves hyperscalers and other data center customers, including frontier AI labs.¹ That segment's third-quarter revenue was $4.87 billion, up 102%, while its smaller advanced technology segment brought in $0.96 billion, up 23%.² Networking products made up 56% of quarterly revenue and compute and storage products 28%.³ About 40% of revenue, roughly $2.3 billion, came from its Hardware Platform Solutions business, which grew 70%.⁴

Its annual report names Amazon, Meta and Google among its customers.¹ The customer list is short and heavy at the top: three customers made up 35%, 17% and 14% of third-quarter revenue, and the top 10 made up 85%.² Its rivals include Hon Hai and Jabil, and about 75% of its 2025 revenue was produced in Asia.³

Growth has been fast. Revenue was $12.39 billion in 2025, and adjusted earnings were $6.05 a share.¹ In July it raised its 2026 revenue forecast to $20.5 billion from $19.0 billion and its free cash flow forecast to $600 million from $500 million.² It also said 2027 revenue growth would accelerate beyond the 65% it expected for 2026.³ In August it sold 11,129,031 new shares at $310 each.⁴ Bloomberg put the last close before that sale was priced at $362.76.⁵

One worry has followed the stock all year. According to a law firm's notice, Digitimes reported on January 22, 2026 that Google may shift assembly of its tensor processing units to other suppliers.¹ In its January results release, Celestica described itself as a preferred manufacturing partner for Google's data center hardware and systems.²

The stock came into the results after a hard fall. It closed at $388.17 on October 6, the highest close in our price file, which starts in mid-September, and at $259.82 on October 23, down 33%.¹ Peers fell too: over the same dates Flex dropped 37% and Jabil 11%.² A New York Stock Exchange market note on October 26 said the S&P 500 fell 0.5% the prior week as the AI trade continued to unwind, citing growing concerns about capital constraints.³ The same note said AI-linked stocks were rallying during the October 26 session, hours before Celestica released its results after the close.⁴

The third quarter beat the company's own forecast. Revenue was $5.83 billion, up 83% from a year earlier and about 5% above the top of the $5.25 billion to $5.55 billion range.¹ Adjusted earnings were $3.30 a share, against a forecast range of $2.88 to $3.08.² Revenue rose 24% from the second quarter alone.³

Reported and adjusted profit were close this time. Earnings per share under standard accounting rules, known as GAAP, were $3.26, against $2.31 a year earlier.¹ Reported operating earnings were $460.0 million and adjusted operating earnings were $496.1 million, a gap of $36.1 million.² The reported operating margin fell to 7.9% from 10.2%, while the adjusted margin rose to 8.5% from 7.6%.³ The opposite moves in the two margins come mostly from a total return swap, a bank contract tied to Celestica's own share price that costs the company money when the swap's value falls: it added a $113.3 million gain to reported operating earnings a year earlier but only a $3.9 million loss this quarter.⁴ The swap cut third-quarter reported earnings by $0.03 a share, but it had added $0.98 a share a year earlier.⁵

Gross margin under standard accounting slipped to 11.0% from 13.0%, which the company ties to the swap swing and to the product mix in its cloud business.¹ The adjusted tax rate was 18%, below the roughly 20% the company expected, helped by an $8.4 million one-time tax benefit.²

The 2026 raise was small. Revenue is now expected at $21.0 billion, up from $20.5 billion, and adjusted earnings at $11.55 a share, up from $11.30.¹ That is a $0.5 billion lift in the revenue forecast, against $1.5 billion in July.² The fourth-quarter forecast is $6.275 billion to $6.575 billion of revenue and $3.37 to $3.57 of adjusted earnings per share. The 2026 adjusted operating margin forecast stays at 8.4%.³

The 2027 outlook is the news. Celestica expects $40.0 billion of revenue, a record 9.0% adjusted operating margin and $21.50 of adjusted earnings a share, with $1.5 billion to $2.0 billion of capital spending.¹ These are the company's goals, not results. At a 9.0% margin, $40.0 billion of sales would mean about $3.6 billion of adjusted operating earnings, roughly double the $1.76 billion that the 2026 outlook implies.² Revenue would be more than three times 2025's $12.39 billion.³ The company says the plan is supported by 2028 customer demand forecasts that are meaningfully higher than its 2027 outlook.⁴

The plan rests on stated assumptions. One is no material change to tariffs from those in effect on October 26, 2026.¹ Another is that customers keep paying substantially all tariff costs, and a third is that Celestica can fund its spending and working capital without raising more capital.² It also needs its next-generation networking programs and its AI compute programs with data center customers to ramp as planned.³

Growth eats cash. Free cash flow, which the company defines as operating cash flow minus equipment purchases, was $127.5 million in the third quarter and $412.5 million for January through September.¹ The new $460 million full-year forecast is $140 million below July's and leaves only about $47.5 million for the fourth quarter.² The company blames working capital set aside to support faster growth in 2027.³

The cash flow statement shows where the money went. Building inventory used $1,108.0 million of cash in the third quarter, while higher payables and other bills provided $1,493.8 million.¹ In other words, suppliers funded much of the build. Customers also held $560.7 million of cash deposits for inventory with Celestica at September 30.²

Selling invoices early helped too. In September Celestica raised the limit on its receivables sale program to $1.0 billion from $450.0 million.¹ At September 30, $700.8 million of sold invoices were still outstanding, against nil at year-end. That balance is larger than the $412.5 million of free cash flow for January through September, so cash flow would have looked much weaker without the program.² The bank or Celestica can end the program on three months' notice, and the banks have no duty to buy any given invoice.³

Capital spending is the other drain. Celestica spent $767.4 million on equipment from January through September and expects about $1 billion for all of 2026.¹ For 2027 it plans $1.5 billion to $2.0 billion, or 3.75% to 5% of the 2027 revenue goal, against a historical range of 1.5% to 2.0% of revenue.² That plan is about 1.5 to 2 times the roughly $1 billion Celestica expects to spend in all of 2026.³ The quarterly report says the company expects a net use of cash in 2027, driven by working capital and capital spending.⁴

The August share sale pays for this for now. Cash was $3,961.3 million at September 30, up from $595.6 million at year-end, with about 37% held by subsidiaries outside Canada.¹ Borrowings and finance leases totaled $818.8 million, so cash exceeded debt by about $3.14 billion.² Another $1,739.3 million was available on its revolving credit line, a bank line it can draw and repay as needed.³

Its term loans and revolving line mature in 2031, and it met all loan covenants at September 30.¹ The lenders are secured by substantially all of its assets, so they are paid ahead of shareholders.² Third-quarter operating earnings covered finance costs about 19 times. Because cash exceeds debt, a net-debt-to-earnings ratio does not apply.³

Shareholders paid for that cushion. The August sale added 11,129,031 shares at $310 each, about 8.8% of the 126,111,808 shares outstanding on October 21.¹ Celestica received about $3.39 billion after $58.7 million of underwriting discounts and costs, and plans to use it for working capital and capital spending.² Buyers in that sale are about 10% under water at $277.48.³

Counting options and stock awards, the share count is about 127.7 million. Performance awards can vest at up to 200% of target, so that count could rise.

The swap will likely hit fourth-quarter reported profit. It covers 1.25 million shares at a strike price of $288.87, and each $1 drop in the share price cuts its value by $1.3 million.¹ The stock closed at $361.325 on September 30.² If it is still at $277.48 at year-end, our estimate is a loss of about $105 million before tax on the 1.25 million shares, which the adjusted figures would leave out, and below the $288.87 strike Celestica would owe the bank cash when the swap settles.³

Celestica also plans a new share buyback after its current one expires on November 2, 2026.¹ If the Toronto Stock Exchange accepts it, the company could buy back up to 2.5% of its public float over twelve months.² About 5.4 million shares were still available under the old plan at September 30.³

At $277.48 the company is worth about $35.0 billion.¹ That is about 12.9 times the 2027 adjusted earnings goal and about 24 times the 2026 forecast.² The stock rose 6.8% from its October 23 close to $277.48 before the open on October 27, against 1.0% for the S&P 500 fund, a span that includes the October 26 session, which came before the results were out.³ It is still about 29% below its October 6 close.⁴

The bull case is that Celestica beat its own forecast by a wide margin, its adjusted margin is rising, and it now guides to 90% growth in 2027 with customer forecasts pointing higher for 2028.¹ It holds more cash than debt, and the market pays under 13 times its 2027 goal for a company that expects 91% growth in 2026 adjusted earnings.²

The bear case, strongest point first, starts with cash. Free cash flow is flat just as spending jumps: the $460 million forecast matches 2025's $458.3 million and implies only about $47.5 million in the fourth quarter, and the company already expects to use cash in 2027.¹ Second is concentration: one customer was 35% of third-quarter revenue, so one buyer changing plans could dent the goal.² Third, the goal is an adjusted figure, built on customer forecasts, with no standard-accounting version. Fourth, the company itself warns that added capacity may be underused and earn less than expected.³ Fifth, it says the long-term path of AI adoption and data center building is uncertain.⁴

We will know more in stages. The call and investor day on October 27 should add detail on the 2027 plan.¹ The fourth-quarter results, likely in late January since last year's call came on January 29, will show whether revenue lands in the $6.275 billion to $6.575 billion range and whether free cash flow reaches $460 million.² The case for the stock weakens if inventory keeps piling up, if customers cut their forecasts, or if Celestica needs new capital after assuming it would not.³

Our price file has no October 26 close for Celestica, so the 6.8% rise since October 23 cannot be split between Monday's session before the results and the reaction to the results themselves.

The results call and investor day were set for 8:00 a.m. Eastern on October 27, and no transcript was in our sources. Details on the 2027 plan, such as how much cash it will use, may have come out there, and this report does not have them.

Celestica does not reconcile its forward adjusted figures to standard accounting, so there is no reported-earnings version of the $21.50 goal.¹ For the fourth quarter alone, the charges it leaves out of adjusted results are put at $0.21 to $0.27 a share.²

The quarterly report says Celestica expects a net use of cash in 2027 but gives no amount, and the release gives no 2027 free cash flow forecast.

The quarterly report gives the shares of the three largest customers but does not name the one behind 35% of third-quarter revenue.

Our sources hold no analyst forecasts or price targets for Celestica, so we cannot say how the 2027 goal compares with outside expectations.

The release sets the new buyback's limit only as up to 2.5% of the public float, gives no dollar amount, and says it needs the Toronto Stock Exchange to accept it first.