UBS: Despite Celestica's Positive Earnings, Risks Remain

Celestica Inc. (CLS) may have exceeded expectations with its first quarter results this week but significant risk still remains for the electronic manufacturing services provider.

"The results were not as bad as the severely reduced outlook given by management in January," said UBS analyst Long Jiang in a research note.

In fact, revenues for the quarter, which reached US$1.842 billion, beat the UBS analyst's estimate of $1.809 billion while Celestica's loss, expected to be 9¢ a share, was only 4¢ a share. Mr. Jiang said a better-than-expected operating margin accounted for the surprising results.

That said, revenues and operating margin are still in decline, having both dropped from the previous quarter and Mr. Jiang anticipates more tough times ahead.

In particular, he said as much as 80% of Celestica's Cisco business is vulnerable to competition.

Mr. Jiang's recommendation remains "reduce" and his price target of US$6 is unchanged.