Will This Send CSIQ Stock Soaring?
The clouds have cleared and the sun is out for Canadian Solar Inc. (NASDAQ:CSIQ). CSIQ stock might be in for a rally, as the company gears up to benefit from the U.S. government’s big announcement on solar energy.
Solar stocks have been among the worst-performing investments of 2015. This has been, in part, because of the solar investment tax credit (ITC) that was going to expire in the New Year, which would obviously mean no more government subsidies for solar companies.
However, Congress may have finally found a consensus over something. The Republicans have agreed to allow an investment tax credit (ITC) for solar companies beyond 2016. Since the Democrats are already on board for the extended ITC, I have no doubts that the legislation will now be easily passed this week. (Source: “Congress Is on the Verge of Passing Multi-Year Extensions for Solar and Wind Tax Credits,” Green Tech Media, December 16, 2015.)
This is a big deal for renewable energy stocks like Canadian Solar. The majority of the company’s revenue comes from the Americas, with more than one gigawatt of projects in the U.S. alone. Certainly, the ITC extension will prove a boon to the company.
Plus, unlike the unprofitable solar stocks like SolarCity and SunEdison, Canadian Solar is making money, while expanding its foothold across the world. The company now operates in 70 countries, including Asia and Europe.
Current lower oil prices may have made renewable alternatives less interesting for many, but there are still people out there who plan for the long-term. This is precisely why renewable energy, particularly solar, continues to enjoy growing worldwide demand. In the latest quarter alone, when oil was hitting all-time lows, Canadian Solar ended up shipping more megawatts of solar energy than it had expected.
It makes perfect sense, though. The cost of solar PV in the U.S. has dropped more than 50% in the last five years and is continuing to head south. Additionally, costs for solar installation are predicted to maintain their downtrend in the next two years, making solar energy a great alternative to fossil fuels. (Source: “Solar Costs Will Fall Another 40% In 2 Years. Here’s Why,” Clean Technica, January 29, 2015.)
The news not only wins over the environmentalists, but also the opponents of solar energy, who long considered it a more expensive, less viable solution to the rising energy demands.
Also, we may argue all day on whether the subsidies should or should not be awarded, but we cannot help but agree that renewable energy has greater upsides than downsides.
Last year alone, the government made more than 350 public and private sector commitments to deploy 885 megawatts of solar electricity. Because of these efforts of deeper penetration, the White House reports that the solar industry alone added jobs 10-times faster than the rest of the economy. (Source: “President Obama Announces New Actions to Bring Renewable Energy and Energy Efficiency to Households across the Country,” White House web site, August 24, 2015.)
The Bottom Line on CSIQ Stock
The bogeyman for solar stocks is finally out of the closet. The tax credit extension beyond 2016 to 2019, and eventually maybe till 2022, is great news for solar companies, especially Canadian Solar. For its cheap price multiples, high return on equity, and strong top- and bottom-line numbers, CSIQ stock looks dirt-cheap at current levels.
The bottom line: I’m bullish on Canadian Solar stock.