First-quarter earnings season has started. Many companies have already reported excellent results this quarter, as artificial intelligence (AI) continues to drive all businesses.
With AI advancing rapidly, Wall Street believes electronics manufacturing services company Celestica (CLS) and tech titan Alphabet (GOOGL) have excellent long-term prospects, rating them both as a “strong buy.”
Over the last five years, Celestica stock has returned 499%, while Google stock has returned 189%, respectively. Note that past performance does not guarantee future returns – however, it showcases both companies’ resilience and ability to withstand market ups and downs while continuing to thrive. Last week, both of these names reported outstanding first-quarter results. Let’s dig into their quarterly earnings.
1. Celestica
Founded in 1994, Celestica (CLS) is a Canadian multinational electronics manufacturing services company. Customers in various industries throughout North America, Europe, and Asia benefit from the company’s design, engineering, manufacturing, and supply chain management solutions.
Following strong Q1 earnings, Celestica’s stock is up 48.4% year-to-date, outpacing the 6.9% gain in the S&P 500 Index ($SPX).
Celestica serves a variety of industries, including aerospace and defense, communications, healthcare, industrial, and semiconductor equipment. Celestica’s diverse customer base has served it well over time. It operates in a variety of industries, reducing its reliance on and risk of exposure to a single sector during industry-specific downturns.
In the first quarter, revenue increased by 20% to $2.21 billion. The company operates through two segments: Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS). While ATS revenue dipped 3%, CCS more than compensated with a 38% year-over-year increase.
Furthermore, adjusted earnings per share jumped to $0.86 compared to $0.47 in the year-ago quarter, and Celestica generated an adjusted free cash flow (FCF) of $65.2 million.
Due to increased demand for its services, management updated its full-year guidance. Revenue is now expected to be $9.1 billion, a 14.3% increase from the previous estimate of $8.5 billion. Adjusted EPS could be around $3.30, compared to the previous forecast of $2.70, and up from $2.43 in 2023. Plus, Celestica aims to generate $250 million in FCF in 2024.
Looking ahead, analysts forecast 37.2% growth in earnings in 2024 to $3.33, accompanied by a 14.7% increase in revenue.
Trading at 13x forward earnings, CLS is a growth stock with double-digit earnings growth expected in 2024. As cloud computing grows with the help of AI, so will Celestica’s financials.
With its diversified customer base, global presence, focus on innovation, and strong financial performance, Celestica appears to be a good buy now.
What Does Wall Street Say About CLS Stock?
Overall, Wall Street rates CLS stock as a “strong buy.” Out of the seven analysts that cover the stock, four rate it a “strong buy,” two recommend a “moderate buy,” and one suggests the stock is a “hold.” Celestica stock is trading close to its mean target price of $45.86. Its high target price of $56 implies a nearly 29% upside over the next 12 months.
2. Alphabet
Alphabet (GOOGL), the parent company of Google, has been a top tech player even before the AI frenzy started. Since 2016, the company has used AI in the majority of its flagship products, including Gmail, Google Maps, and Photos.
Over the last couple of years, Alphabet’s stock has experienced remarkable growth, thanks to the growth and popularity of the majority of its products. Furthermore, Google Search’s dominance in the global search engine market is difficult to match. Even after integrating AI, Bing – owned by Microsoft (MSFT) – has been relatively unsuccessful in competing with Search and shaking its 91% market share. Over the last five years, Alphabet’s revenue has grown at a compounded annual growth rate of 14%, while earnings have increased by 17.2%.
In the recent Q1 earnings call, CEO Sundar Pichai stated that while it took Google 15 years to reach $100 billion in annual revenue, it only took the last six years to triple it, reaching $300 billion by 2023.
Talking about AI, the CEO added, “We have developed new AI models and algorithms that are more than 100 times more efficient than they were 18 months ago.”
Year-to-date, GOOGL stock has surged 23%, outpacing the tech-heavy Nasdaq Composite’s ($NASX) gain of 6.1%.
In Q1, Google Search accounted for 57% of total revenue, up 14.4% year on year to $46 billion. Another growth driver is the Google Cloud segment, which increased by 28.4% to $9.6 billion in the quarter. Total revenue in Q1 increased 15.4% year on year to $80.5 billion, while earnings per share increased an impressive 61.5% to $1.89.
Furthermore, advertising contributes significantly to its top line. The company generated $61.6 billion in ad sales during the quarter, accounting for 77% of total revenue. In addition, YouTube ads increased by a staggering 21% in the quarter. According to BCC Research, the company is the leading player in digital advertising. It has more room for growth in this market, as the global digital advertising market is expected to be worth $1.3 trillion by 2027.
With a plethora of resources, Alphabet is more than capable of leading the AI game. At the end of the first quarter, the company had $108 billion in cash, cash equivalents, and marketable securities, with $13.2 billion in long-term debt outstanding. Additionally, it generated $16.8 billion in free cash flow. This enabled the company to begin paying dividends.
Alphabet announced its first quarterly dividend of $0.20 per share. In the future, it intends to pay additional quarterly dividends if the company’s Board of Directors approves. The company also announced the repurchase of an additional $70 billion in shares.
In 2024, analysts forecast Alphabet’s revenue to increase by 12.5%, while earnings could grow by 29.4%. Alphabet, trading at 22 times forward earnings, appears to be reasonably valued for a growth stock with long-term AI prospects.
What Does Wall Street Say About GOOGL Stock?
Like most “Magnificent Seven” stocks, Wall Street is bullish about GOOGL, rating it a “strong buy.” Out of the 44 analysts that cover the stock, 35 of them rate it a “strong buy,” three recommend a “moderate buy,” and six of them suggest a “hold.” Alphabet has surpassed its average target price of $167.95, though its high target price of $190 suggests a 10.5% upside from current levels.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
