(CSIQ) is one of the top suppliers of photo-voltaic (PV) modules to
the solar industry. With headquarters in Canada, they also have a
thriving business unit in China that builds and sells large-scale
PV projects customized for municipal or corporate energy grid
The company has operations in North America, Europe and Asia that
allow them to serve a wide geographic base of customers. In
addition to their core businesses in building PV panels and larger
projects, they also design and produce specialty solar modules and
products such as solar-powered bus stop lighting and solar-powered
car battery chargers.
Estimates Are Hot
My colleague Eric Dutram chose CSIQ as Bull of the Day about six
weeks ago. I wanted to revisit the name for two reasons. First,
estimates have gone even higher since their Q4 earnings report
propelled the stock to a Zacks #1 Rank.
Secondly, I bought CSIQ shares for my Follow The Money portfolio
this month based on this growth and the fact shares have gone "on
sale" since their all-time high at $44.50 on February 28. Here's
what Eric had to say on February 10...
"The firm has a definite tilt towards European operations, as this
segment accounts for about 50% of total revenues. While this was a
bit of an issue in years past, European is turning around and CSIQ
is looking to clean up in this market once again.
"Beyond Europe, the company is also making a name for itself in
Asian markets, and particularly in the fast-growing Japanese solar
space. This is a very important market -- given Japan's desire to
replace nuclear power -- and since Canadian Solar is now the top
foreign solar company in Japan, the firm looks to have a bright
future in this key country."
Since Eric's report, the 2015 full-year EPS consensus has gone from
$4.16 to $4.65, representing 27% yoy growth against 2014's
spectacular 480% growth.
And using this year's estimate of $3.66, the stock is trading at
just 9X forward earnings. From these numbers it's easy to see why
the stock has been one of the top price performers of the past
year, moving up 10-fold from below $4 last March.
Price Targets Still Haven't Cooled
But Wall Street analyst still like the growth story so much, that
they are maintaining $50 price targets on the shares.
One such view comes from the Alternative Energy analyst group at
JPMorgan, who had this to say recently...
"We expect at least 20% y/y GigaWatt shipment growth globally in
2014 to ~46GW, largely driven by rapid adoption in the Asia Pacific
region, though investors should expect seasonal softness in 1Q14."
That "seasonal softness" is due to some difficulties the company
had with production due to the extreme winter weather in Canada
this year. And it could be why CSIQ shares are down 25% off of
The Global Solar Vortex
Remember when solar stocks were some of the cheapest valuations on
the planet, trading at 3 or 4 times EPS after a 2010 downturn when
Germany, the biggest government subsidizer, pulled away the
support? Suddenly there was a big supply glut of PV equipment that
had to be absorbed.
JPM analyst note, "Investor sentiment toward the space is still
tainted by the 2011-2013 downturn, yielding opportunity to buy into
solar growth at still-reasonable valuation levels in some cases."
Those "some cases" probably wouldn't be
(FSLR) trading at 30X forward EPS estimates, much less
(SCTY) whose projected profitability may not materialize for
another 2 or 3 years.
That's why picking up CSIQ shares trading under 8X next year's
~$4.50 seemed like a no-brainer to me, even if 2014 estimates had
to be knocked down a bit.
And other analysts are joining that view now. In a research note
published on March 11, Dougherty & Company initiated coverage
of CSIQ, noting how this low-cost provider was in a prime position
to benefit from the industry's double-digit growth "driven by
strong demand worldwide as the price of solar electricity reaches
parity in larger geographic regions."
"In addition to its core PV module business, CSIQ's higher margin
solar plant business with a pipeline of 1.3 GW is positioned to
grow substantially reaching 50% of total business in 2014 up from
30% in 2013 due to its multiplicative effect on revenues. We
believe the stock is undervalued with respect to its peers. We are
initiating coverage with a Buy rating and a $51 price target based
on an EV/Sales multiple of 1X."
That sounds cheap. But how about this: on a Price/Sales basis,
using a $1.9 billion market cap and projected 2014 revenues of $2.8
billion, Canadian Solar is trading at 0.68 times. Get out the
tanning lotion. Solar is on sale!
Disclosure: I own shares of CSIQ for the Zacks Follow The Money
Kevin Cook is a Senior Stock Strategist for Zacks where he runs
Follow The Money
CANADIAN SOLAR (CSIQ): Free Stock Analysis
FIRST SOLAR INC (FSLR): Free Stock Analysis
SOLARCITY CORP (SCTY): Free Stock Analysis
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