Can CLS' ATS Segment Sustain Margin Growth Despite Revenue Headwinds?

Celestica, Inc. CLS generated revenues of $806 million from the Advanced Technology Solutions (ATS) in the first quarter of 2026 compared to $807.2 million in the year-ago quarter. Despite relatively flat revenue year over year. ATS segment operating income rose 18% year over year, with the operating margin rising to 6% from 5% in the year-ago quarter. The margin improvement suggests more efficient execution and better profitability across the segment’s diversified end markets.The ongoing portfolio optimization in the Aerospace & Defense vertical is hindering revenue growth. The company is increasingly focusing on high-margin opportunities to capitalize on long-term gains at the expense of revenue growth in the near term. Demand softness in the Capital equipment vertical also impacted the net sales in this segment. However, despite weakness in the first quarter, management expects the capital equipment business to return to a growth path in the second quarter.Strength in the HealthTech business is offsetting the weakness in other ATS businesses. Industrial business demand is also improving compared to prior quarters. Industrial program ramps are expected in the second quarter. Such trends are encouraging for Celestica as it diversifies its revenue stream beyond the fast-growing AI data center domain.How Are Competitors Faring?Celestica’s ATS segment faces competition from the Plexus Corp. PLXS and Sanmina Corporation SANM in the electronics manufacturing services industry.  Plexus reported 23.2% year over year revenue growth in the aerospace defense domain, while revenues in the healthcare business grew 15% year over year.  Strong Industrial funnel growth was supported by opportunities in data center, automation, and robotics and energy verticals. Plexus’ Industrial sector’s revenues were up 20.7% year over year.In the second quarter of 2026, Sanmina’s revenues from the industrial and energy, medical, defense and aerospace,automotive and transportation end markets remained relatively flat year over year. However, strength in Sanmina’s communications, cloud and AI data center market is offsetting this decline.Celestica's Price Performance, Valuation & EstimatesCelestica’s shares have soared 173.3% over the past year compared with the industry’s growth of 123.4%.Image Source: Zacks Investment ResearchFrom a valuation standpoint, Celestica trades at a forward price-to-earnings ratio of 30.38, higher than the industry average of 27.26.Image Source: Zacks Investment ResearchEarnings estimates for 2026 have increased 13.65% to $10.16 over the past 60 days, while the same for 2027 have also increased 14.24% to $14.6.Image Source: Zacks Investment ResearchCelestica currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Radical New Technology Could Hand Investors Huge GainsQuantum Computing is the next technological revolution, and it could be even more advanced than AI.While some believed the technology was years away, it is already present and moving fast. Large hyperscalers, such as Microsoft, Google, Amazon, Oracle, and even Meta and Tesla, are scrambling to integrate quantum computing into their infrastructure.Senior Stock Strategist Kevin Cook reveals 7 carefully selected stocks poised to dominate the quantum computing landscape in his report, Beyond AI: The Quantum Leap in Computing Power.Kevin was among the early experts who recognized NVIDIA's enormous potential back in 2016. Now, he has keyed in on what could be "the next big thing" in quantum computing supremacy. Today, you have a rare chance to position your portfolio at the forefront of this opportunity.See Top Quantum Stocks Now >>This article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks