It Looks Like a Double Could Be on the Horizon for Canadian Solar Stock
Solar Stocks Get Boosted by U.S. Climate Bill
Solar stocks started surging on July 28 after Senator Joe Manchin put his support behind a U.S. climate bill after previously rejecting it.
The news helped power up the stocks of solar companies, with the Invesco Solar ETF (NYSEARCA:TAN) jumping by more than six percent.
If the climate bill gets passed, it should trigger bullish tailwinds for the solar industry, including mid-cap Canadian Solar Inc. (NASDAQ:CSIQ). The company has an extensive business footprint and is rapidly growing.
Chart courtesy of StockCharts.com
CSIQ stock is currently trading around $36.00, well below its record high of $67.39 set in January 2021. The move to that record level was triggered by Joe Biden’s election win and his support for green energy projects.
Canadian Solar stock recently rallied by 61% after declining to a 52-week low of $22.15 in May, and I think there are a lot more gains to come from Canadian Solar Inc.
Why CSIQ Stock Is So Affordable
Canadian Solar Inc., which has a current market cap of $2.3 billion, delivered revenues of $5.3 billion in 2021. This implies that the company’s valuation is only 0.5 times its 2021 revenues.
Canadian Solar Inc. gets even more attractive when you consider that it’s trading at 0.32 times its consensus 2022 revenue estimate of $7.3 billion and 0.29 times its consensus 2023 revenue estimate of $8.0 billion. (Source: “Canadian Solar Inc (CSIQ),” Yahoo! Finance, last accessed July 29, 2022.)
| Fiscal Year | Revenues (Billions) | Growth |
| 2017 | $3.4 | N/A |
| 2018 | $3.7 | 10.4% |
| 2019 | $3.2 | -14.5% |
| 2020 | $3.5 | 9.4% |
| 2021 | $5.3 | 51.8% |
(Source: “Canadian Solar Inc.” MarketWatch, last accessed July 29, 2022.)
At the same time, Canadian Solar Inc. has managed to deliver five consecutive years of earnings before interest, taxes, depreciation, and amortization (EBITDA) income.
| Fiscal Year | EBITDA (Millions) | Growth |
| 2017 | $321.1 | N/A |
| 2018 | $449.4 | 31.0% |
| 2019 | $426.9 | -5.0% |
| 2020 | $412.1 | -3.5% |
| 2021 | $441.0 | 7.0% |
(Source: MarketWatch, op. cit.)
On the bottom line, Canadian Solar Inc. has been profitable, with generally accepted accounting principles (GAAP) profits in five straight years. The market may be concerned about the declines in 2020 and 2021, but the positive outlook gives us confidence.
Analysts estimate that Canadian Solar Inc. will report an adjusted $2.03 per diluted share for full-year 2022, with a high estimate of $3.54 per diluted share. And it gets even better, with the company expected to report an adjusted $3.26 per diluted share in 2023. (Source: Yahoo! Finance, op. cit.)
At about 11 times its consensus 2023 EPS estimate, Canadian Solar looks attractive.
| Fiscal Year | GAPP Diluted EPS | Growth |
| 2017 | $1.69 | N/A |
| 2018 | $3.88 | 129.6% |
| 2019 | $2.84 | -26.8% |
| 2020 | $2.38 | -16.2% |
| 2021 | $1.46 | -38.6% |
(Source: MarketWatch, op. cit.)
Canadian Solar Inc.’s free cash flow has tended to be more volatile, as solar companies have to make significant capital expenditures.
| Fiscal Year | Free Cash Flow (Millions) | Growth |
| 2017 | -$346.2 | N/A |
| 2018 | $74.0 | 121.4% |
| 2019 | $138.7 | 87.5% |
| 2020 | -$556.6 | -501.3% |
| 2021 | -$970.3 | -74.3% |
(Source: MarketWatch, op. cit.)
Analyst Take
The climate push in the U.S. will help solar stocks, but the growth is significant globally. Canadian Solar Inc. has a major presence in many regions.
In my view, not only are the tailwinds bullish, but Canadian Solar stock trades at an attractive valuation that deserves a look. If the company’s revenue and earnings estimates play out, I wouldn’t be surprised if CSIQ stock doubles back to above its record high.
