Canadian Solar Inc. (NASDAQ: CSIQ) lost more than 55% of its stock value year-to-date. CSIQ stock price dropped because of investors’ concerns regarding the challenges confronting the entire solar industry. In other words, the decline was not related to its financial performance. Is it time for investors to buy Canadian Solar stock for future gains?
Investors are worried about the balance sheet, the complexity of business models, and the availability of financing to support the growth strategies of energy companies. They are also concerned about the net metering policy changes in several U.S. states. The recent chapter 11 bankruptcy filing of SunEdison Inc (OTCMKTS:SUNEQ) gave more reasons for investors to stay away from the solar industry. (Source: “Solar developer SunEdison in bankruptcy as aggressive growth plan unravels,” Reuters, April 22, 2016.)
Canadian Solar Stocks Consistently Outperform the Market
It is true that some solar power companies are struggling, but not all of them. Canadian Solar has been delivering profits and revenues that have topped the consensus estimates over the past four quarters. The company has achieved an average earnings rate and a revenue growth rate of 51.10% and 10.35%, respectively.
|Canadian Solar Inc. Quarterly Earnings Per Share (EPS) & Revenue|
|Quarter||Reported EPS||Consensus EPS||Reported Revenue||Consensus Revenue|
|2Q16||$0.70||$0.37||$805.91 million||$714.47 million|
|1Q16||$0.39||$0.17||$721.42 million||$664.7 million|
|4Q15||$1.05||$0.75||$1.12 billion||$1.04 billion|
|3Q15||$0.79||$0.26||$849.81 million||$721.3 million|
In the second quarter of 2016 alone, Canadian Solar stock recorded an 11.6% increase in revenue from the previous quarter, or 26.6% from $636.7 million in the second quarter of 2015. Its basic earnings more than doubled to $0.70 per share from $0.32 per share in the same period last year.
The company shipped 1,290 megawatts (MW) of solar modules in the second quarter, higher than the 1,172 MW of solar modules delivered in the first quarter this year. Its gross margin increased by 17.6%.
CSIQ stock remained profitable because of several factors: high demand for its modules, better-than-expected selling prices, and robust cost control at its factories. (Source: “Canadian Solar Reports Second Quarter 2016 Results,” Canadian Solar Inc., August 18, 2016.)
Canadian Solar Stock has strong balance sheet
Investors should not worry when it comes to the balance sheet of Canadian Solar stock. The company’s financial position is healthy, with $1.0 billion of cash, cash equivalents, and restricted cash by the end of the second quarter. Its total assets were $4.94 billion, intangible assets were $80.97 million, and total liabilities were $4.01 billion.
The company’s book value per share was $15.91 compared to the $12.89 per share closing price of CSIQ stock on Wednesday. Theoretically, the book value represents the amount to be received by shareholders if a company was liquidated. It also shows whether a stock is overpriced or undervalued. Based on the numbers, the CSIQ stock is an attractive investment because it is trading at a discount.
Management is focused on building shareholder value
During the company’s second-quarter earnings call with analysts and investors, Canadian Solar Inc.’s CEO Shawn Qu said he is focused on creating shareholder value and ensuring the health and success of the company in the near and long terms.
Management decided not to pursue a yield co offering because the market environment was unfavorable, but adopted a flexible and localized strategy to monetize its solar project assets. It also recycled its capital to take advantage of new growth opportunities.
Canadian Solar Inc. agreed to sell its two solar power plants in China and it expected to close the deal in the fourth quarter. The firm is also planning to launch a Japanese real estate investment trust (REIT) for its solar assets in Japan in the second or third quarter next year. Its current portfolio of solar power plants in operation has a total of 472 megawatt peak (MWp) with a resale value of around $850.0 million.
Canadian Solar’s Manufacturing Capacity
It is worth noting that the company is using its new diamond wire-saw technology to increase its wafer capacity. The technology is compatible with its proprietary black silicon multi-crystalline solar cell technology, which boosts solar cell efficiency significantly while reducing the silicon usage and manufacturing cost.
Its internal wafer capacity could reach 1.3 gigawatts (GW), its cell capacity 3.05 GW, and its module capacity 5.8 GW by the end of this year.
Canadian Solar expects to ship 5.4 GW to 5.5 GW of solar modules and bring in revenue of around $3.0 billion to $3.2 billion in the full fiscal 2016. According to Qu, the company is making progress to becoming one of the leading developers and owners of high-quality solar power plants worldwide.
Mercom Capital Group, a research firm, estimated that the global solar installation is expected to reach 64.7 GW this year. China, Japan, and the United States account for two-thirds of the global solar market. (Source: “The 2016 Global PV Outlook: US, Asian Markets Strengthened by Policies to Reduce CO2,” Renewable Energy World, January 25, 2016.) Canadian Solar would benefit from this expansion because it has substantial project pipelines in these countries.
The Bottom Line for CSIQ stock
Canadian Solar stock has solid growth opportunities in the future. Investors should not be discouraged by the weakness of CSIQ stock; instead, consider it an opportunity to scoop up more shares and generate generous returns in the future.
Wall Street analysts predicted that the stock would outperform the market. Their 12-month median price target for CSIQ stock is $20.00 per share, an upside of 55.2%. Their highest price target is $30.00 per share, which is an increase of 132.7%. Remember that the company has been consistently delivering robust quarterly profits and revenues, so it is likely that Canadian Solar stock will surge as the solar industry continues to grow.