Canadian Solar Inc.: Why This Solar Play Could Easily Double

CSIQ Stock Is Trading at a Bargain

The technology war with China has picked up steam with the Joe Biden administration. Where this will end is anyone’s guess, but now it appears the solar panel market is in the spotlight.

The U.S. recently banned the import from a Chinese company of specific materials used in the manufacturing of solar panels. I’m not going to dive into the politics, but the impact of the move is uncertain. Until more details are released, I remain bullish on the solar energy space and see tremendous upside potential.

One of my favorite solar energy plays is Canadian Solar Inc. (NASDAQ:CSIQ), which I view as dirt cheap after retrenching by 33% from its record high of $67.39 in January.

At its current $40.00 handle, Canadian Solar stock has pulled back to levels prior to Biden’s election win in November 2020.

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A look at the following chart shows CSIQ stock trading around the top of its previous ascending triangle resistance.

Chart courtesy of StockCharts.com

Watch for possible weakness, given the emergence of a death cross pattern—a bearish move highlighted by the 50-day moving average breaking below the 200-day moving average.

Strong Fundamentals Make Canadian Solar Stock Attractive

The fact that Canadian Solar Inc. managed to grow its revenues by 8.6% during the COVID-19 pandemic in 2020 is encouraging.

Fiscal YearRevenues (Billions)Growth
2016$2.9N/A
2017$3.418.8%
2018$3.710.4%
2019$3.2-14.5%
2020$3.58.6%

(Source: “Canadian Solar Inc.” MarketWatch, last accessed June 29, 2021.)

If the revenue estimates come anywhere close, Canadian Solar is in line to report significant growth.

Analysts estimate that the company will report $5.9 billion in revenues in 2021, up by a staggering 69.7%. The growth rate is expected to slow to 10.3% in 2022, but Canadian Solar’s revenues could still run at an impressive $6.5 billion. (Source: “Canadian Solar Inc. (CSIQ), ”Yahoo! Finance, last accessed June 29, 2021.)

Assuming the company can achieve its consensus revenue estimate in 2022, Canadian Solar will trade at a mere 0.4 times the revenue estimate. This is very cheap, especially in the current climate.

Canadian Solar Inc. has consistently delivered earnings before interest, taxes, depreciation, and amortization (EBITDA) income.

Fiscal YearEBITDA (Millions)Growth
2016$146.5N/A
2017$321.1119.2%
2018$449.439.9%
2019$426.9-5.0%
2020$412.1-3.5%

(Source: MarketWatch, op. cit.)

The company has also delivered a steady stream of generally accepted accounting principles (GAAP) earnings-per-share (EPS) profits.

Fiscal YearGAAP Diluted EPSGrowth
2016$1.12N/A
2017$1.6950.9%
2018$3.88129.6%
2019$2.84-26.8%
2020$2.38-16.2%

(Source: MarketWatch, op. cit.)

But there is some earnings uncertainty in 2021. Canadian Solar is expected to see its profits fall to a consensus $1.41 per diluted share this year, but there is a high estimate of $2.38 per diluted share. (Source: Yahoo! Finance, op. cit.)

The earnings picture looks much better in 2022, as analysts expect Canadian Solar Inc. to more than double its earnings to $3.43 per diluted share. Their high estimate of $5.07 would give Canadian Solar stock a cheap forward multiple of 8.9 times.

Canadian Solar reported positive free cash flow (FCF) for 2018 and 2019 prior to reporting a negative reading for 2020. With the company’s revenues expected to surge this year, its FCF could return to positive.

Fiscal YearFree Cash Flow (Millions)Growth
2016-$1250.0N/A
2017-$346.272.3%
2018$73.9121.4%
2019$138.787.5%
2020-$556.6-501.3%

(Source: MarketWatch, op. cit.)

The company’s balance sheet carries $2.2 billion in debt and $981.2 million in cash. (Source: Yahoo! Finance, op. cit.)

Analyst Take

I remain positive about the solar energy segment despite some of the current noise regarding solar panels. At the end of the day, the shift to green energy and carbon neutrality will be supportive.

While Canadian Solar Inc.’s debt is high, I don’t see an issue in the immediate future, given the company’s strong revenue and earnings growth.

Considering that CSIQ stock trades at a major discount to the company’s expected revenues, I like the chances of a potential double from its current price.