Celestica stock tumbles ahead of earnings: rebound or more pain?

Celestica stock has moved into a bear market, mirroring the performance of other artificial intelligence (AI) companies. CLS dropped to $307 in New York, down by over 35% from its highest level this year. This retreat will be put to the test when the company publishes its financial results next week.

Celestica stock in focus ahead of earnings

Celestica, a top Canadian technology company, has slumped in the past few weeks and erased the gains it made earlier this year. It is now trading at the same level it was trading at when the markets opened in January. 

Celestica has become one of the top AI proxies in Canada, thanks to its large partnerships with companies like Alphabet, Meta Platforms, Amazon, and Cisco. Its top ten clients, who include large multi-billion-dollar companies, account for about 10% of its total revenue.

These clients use Celestica’s services, which include hardware design and engineering, electronics manufacturing and systems assembly, supply chain management, and testing and quality assurance.

These services have come in heavy demand this year as companies have boosted their artificial intelligence investments. Big tech companies are also using its services as they design their own chips.

Its most recent results demonstrated this growth. Its revenue jumped by 53% to $4.05 billion, near the upper side of its guided range. Its gross and profit margins also continued rising, helped by its pricing power. Gross margin rose to 10.8%, while its earnings from operations soared to $272 million.

Analysts are upbeat as its earnings loom

The next important catalyst for the Celestica stock price will be its earnings, which will come out next week. These results are expected to show that its business continued doing well as its top clients boost their spending. Google recently said that it planned to spend $80 billion this year.

Analysts tracking the company are largely optimistic ahead of its earnings report. The average estimate is that its revenue will come in at $4.39 billion, up by 51% YoY. For a company that was started 30 years ago, this growth is phenomenal and is a sign that it continues to evolve.

Its earnings per share is expected to come in at $2.31, higher than the $1.39 it made in the same period last year. Celestica has a long track record of doing better than estimates. In its last earnings report, the EPS was better than estimates by 8 cents. 

A stronger-than-expected earnings report and guidance will be bullish for the company as its stock remains under pressure. It will also help it to justify the hefty valuation, with the forward price-to-earnings ratio of 32 being higher than its historical average.

Celestica share price technical analysis

Celestica shares chart | Source: TradingView

The daily chart shows that the CLS stock has plunged in the past few weeks. It has dropped from a high of $472 in June to the current $307. 

The stock recently dropped below the key support level of $324, the neckline of the head-and-shoulders pattern. Also, the 50-day and 100-day Exponential Moving Averages (EMA) are about to have a bearish crossover.

The stock has recently formed a morning star candlestick pattern, a potential bullish reversal signal. However, unless it breaks above the key resistance at $324 and then clears the psychological $350 level, it is likely to remain under pressure. Conversely, a move below the morning star's low at $282 would invalidate the bullish setup and signal further downside.