CLS Benefits From Strong Cash Flow Growth: More Upside Ahead?

Celestica, Inc. CLS generated $356.3 million in cash from operating activities, up from $130.3 million a year ago. There are multiple factors driving the cash flow.Disciplined working capital management is a major driver. In the first quarter of 2026, accounts receivable increased by $529.3 million and inventory rose by $484.9 million due to higher revenue volumes and growing demand, particularly in its Connectivity & Cloud Solutions (CCS) segment. This is bad for short-term cash flow because the company has booked sales but hasn't collected the cash yet.However, these increases were more than offset by a $1.07 billion rise in accounts payable and accrued liabilities, resulting in favorable working capital changes of $87 million. This implies Celestica doesn't have to pay suppliers immediately, hence the company has the cash. Cash cycle days improved to 55 days, versus 69 days a year ago. A cash cycle indicates the average time it takes to convert inventory goods into cash through sales.CLS generated revenues of $3.24 billion from the Connectivity & Cloud Solutions segment in the first quarter of 2026, up 76% year over year. Next-generation AI/ML compute program ramps, hyperscaler deployments, demand for 800G networking switches and storage platform growth are propelling revenues. Celestica’s strong revenue growth, combined with a stable cash cycle, indicates that cash is not held up unduly in excess inventory.Free cash flow was $137.9 million in the first quarter compared with $93.6 million in the prior-year quarter.  It is to be noted that aggressive investment in manufacturing capacity to support AI-related revenues remains a drag on free cash flow.How Are Competitors Faring?The company faces competition from Jabil, Inc. JBL and Sanmina Corporation SANM in the Electronics Manufacturing Services industry. In the second quarter of fiscal 2026, Sanmina generated $398.8 million of net cash from operating activities compared with $156.9 million in the previous year’s quarter. Free cash flow came in at $342 million, supported by solid earnings and balance-sheet execution, while net capital expenditures were $57 million, which management said was below its outlook primarily due to timing. Sanmina also continued repurchasing stock, buying back 1.1 million shares for $160 million during the quarter. Strong communications networks and cloud and AI infrastructure demand are driving growth.In the second quarter of fiscal 2026, Jabil generated $411 million of net cash from operating activities compared to $334 million a year ago. AI data center infrastructure, healthcare and advanced warehouse and retail automation are major growth drivers for the company. Jabil is expected to generate more than $1.3 billion in adjusted free cash flow.Celestica's Price Performance, Valuation & EstimatesCelestica’s shares have soared 177.6% over the past year compared with the industry’s growth of 139.8%.Image Source: Zacks Investment ResearchFrom a valuation standpoint, Celestica trades at a forward price-to-earnings ratio of 29.92, higher than the industry average of 27.59.Image Source: Zacks Investment ResearchEarnings estimates for 2026 have increased 15.06% to $10.16 over the past 60 days, while the same for 2027 have also increased 15.78% 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.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention. See them 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