Canadian Solar Beats on Q2 Earnings, Shares Rally Over 24% - Analyst Blog

Solar cell manufacturer Canadian Solar Inc. 's ( CSIQ ) share price rallied yesterday by more than 24% following its second quarter 2014 results. The company reported earnings of 95 cents per share, reversing its year-ago loss of 29 cents per share and beating the Zacks Consensus Estimate of earnings of 58 cents. The reported number was also considerably above 7 cents per share earned in the sequentially preceding quarter.

The upside was driven by an increase in shipment volume and higher revenues.

Total Revenue

Canadian Solar posted revenues of $623.8 million in the second quarter, beating the Zacks Consensus Estimate of $575 million by 8.5%. Total revenues were almost 64% higher than $380.4 million reported in the prior-year quarter.

Canadian Solar generates a major part of its revenues from global operations. Geographically, in the second quarter of 2014, sales to the Americas comprised 55.5% of net revenues; sales to Asia and others comprised 29.8% while sales to the European markets represented 14.7% of net revenues.

The contribution from Asia declined significantly from the prior-year quarter as well as sequentially, while the American markets performed remarkably well over that period. Again, Europe is slowly gaining traction, increasing both year over year as well as sequentially.

Operational Update

Solar module shipments in the reported quarter totaled 646 megawatts (MW), up 42% year over year and 29.2% sequentially.

Gross profit in the second quarter was $118.2 million, much higher than the year-ago gross profit of $48.7 million and $68.6 million in the preceding quarter. The increase in gross profit was primarily due to more revenues coming in from the company's higher-margin total solutions business, lower module manufacturing cost, higher module average selling price (ASP) as well as higher module shipments.

Total operating expenses were $50.5 million in the quarter, up 38.7% year over year and 20.2% sequentially.

Although operating expenses saw an upward spike, Canadian Solar boosted its operating margin considerably by 770 basis points (bps) year over year and 520 bps sequentially.

Research and development (R&D) expenses were $2.9 million in the second quarter of 2014, down from $3.0 million a year ago but up from $2.5 million in the last reported quarter.

Financial Update

As of Jun 30, 2014, cash and cash equivalents were $341.3 million, higher than $228.3 million as of Dec 31, 2013.

Net cash used in operating activities was $44.3 million, compared to $153.7 million in the first quarter of 2014.

Long-term debt as of Jun 30, 2014, was $150.1 million, down from $151.4 million as of Dec 31, 2013.

At the end of Jun 2014, Canadian Solar had in its basket numerous utility-scale solar projects totaling approximately 1.3 gigawatt (GW) DC. These projects comprise owned and joint-venture projects along with projects where the company provides engineering, procurement, and construction (EPC) services.

Recently, the company announced that it executed a 44-MW module sales agreement with affiliates of Entropy Investment Management and Entropy Solar Integrators, which will construct seven solar farms in North Carolina this year.

The U.S. as well as Europe has imposed tariffs on China-made solar products. Moreover, in July, the U.S. has also extended its duties that cover solar products manufactured in Taiwan. Hence, near-term instability resulting from trade disputes and policy uncertainty will likely hurt Canadian Solar in the months ahead. We note that most of the company's manufacturing facilities are in China.


Canadian Solar expects shipments in the range of 720 MW to 750 MW in the third quarter of 2014. Total revenues are expected in the range of $760 million to $800 million with gross margin between 19% and 21%.

Peer Comparison

ReneSola Ltd. ( SOL ) reported earnings per American Depositary Share (ADS) of 1 cent in the second quarter of 2014, reversing the year-ago loss of 24 cents per ADS. The Zacks Consensus Estimate was a loss of 15 cents per ADS. The upside was driven by lower operating expenses and higher margins.

Zacks Rank

The company presently holds a Zacks Rank #3 (Hold). Other stocks to look out for in the space are JinkoSolar Holding Co. Ltd. ( JKS ) and Enphase Energy, Inc. ( ENPH ). JinkoSolar sports a Zacks Rank #1 (Strong Buy) while Enphase Energy carries a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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