Like many companies in the solar business, Canadian Solar Inc. (NASDAQ:CSIQ) stock has taken a beating in the past year. Moreover, CSIQ stock is down another 10% on Thursday after it reported fourth-quarter earnings. Could this be the end of Canadian Solar?
CSIQ Stock: Why Canadian Solar Still Has a Chance
First, despite the sell-off in Canadian Solar stock on Thursday, the company actually had a pretty decent quarter.
In the fourth quarter of 2015, Canadian Solar generated $1.12 billion in net revenue, beating analysts’ expectations of $1.04 billion. Net income improved significantly from the year-ago period to $62.3 million. This translates to earnings of $1.05 per share, 38% better compared to analysts’ expectations of $0.76. (Source: “Canadian Solar Reports Fourth Quarter and Full Year 2015 Results,” Canadian Solar Inc., March 10, 2016.)
It’s the guidance that really spooked the market. The company expects to generate between $2.9 billion and $3.1 billion in revenue in 2016, which is quite a bit lower than the consensus estimate of $3.47 billion. Moreover, the guidance range would also represent a decline from 2015 revenue.
But it’s not all gloom and doom for the solar company. You see, investors became concerned when Canadian Solar filed with the U.S. Securities and Exchange Commission (SE) in November to form a yieldco. However, the recent downturn in solar stocks has led the company to reconsider that decision. Instead of forming a yieldco, Canadian Solar might be selling some of its assets.
Shawn Qu, chairman and CEO of Canadian Solar, said that there are “several options to monetize our project development expertise and our solar power plant assets,” and an “outright sale of our solar power plants” is one of them. (Source: Ibid.)
Note that if Canadian Solar were to go ahead with a sale of some of its assets, it could significantly improve its financials. The resale value of these assets is estimated to be $2.5 billion, which would contribute around $355 million to gross profit. Moreover, an asset sale would also boost its revenue guidance to the range of $3.2 billion to $3.6 billion, significantly better than its base case forecast.
The Bottom Line on CSIQ Stock
Of course, selling assets alone is not going to be enough to turn the company around. Canadian Solar also needs to grow its business.
Luckily, the company is gaining share in Asia, a market with huge potential in solar energy.
In Japan, Canadian Solar started commercial operation of three solar power plants and its pipeline of projects in development totaled 582.2 MWp by the end of January.
In China, the company has started commercial operation of eight solar power plants and plans to add an additional 150 MWp to the grid in 2016.
There you have it. CSIQ stock might be down now, but the company is far from over.