Canadian Solar: Is the Debt Unmanageable?

Canadian Solar (CSIQ) and Yingli are the strongest and weakest players of the China’s solar panel division, respectively. I have been bullish on Canadian Solar for quite some time. Canadian Solar, due to the company’s profitability, has delivered nicely in the recent past. Last week, Canadian Solar released its Q1 quarterly results, signifying an elevated top-line prospect for this year. Canadian Solar not only surpassed estimates, but it also guided strong for the year, which was necessary for the solar sector as many of the big names reported worse-than-expected earnings.

Canadian Solar cheered stockholders with better than projected results across the board in the most recent quarter, and that is the major reason why the company’s stock surged on Wednesday.
In the first quarter, the company sold 1,172 MW of solar panels for around $721.5 million, or 61.1 cents per watt. The quarter did not comprise a great influence from its system development business, and therefore it clearly indicates about how much module manufacturing subsidizes to Canadian Solar’s solar business.

From those sales, Canadian Solar produced a gross profit of $112.5 million. On the other hand, after expending $74.1 million in operating expenses, the company only generated $38.5 million from the operations.

That’s not a lot keeping in mind the company’s $2.2 billion debt, out of which $1.4 billion is not related to utility scale projects on the balance sheet. Even a minor change in cost structure or solar module rates can lead to bankruptcy, such as with LDK Solar, Suntech Power, and now Yingli Green Energy.

Canadian Solar’s systems business model has saved it from going down. Canadian Solar builds overall utility-scale projects. The company’s management projects that it has around $950 million of value in 437.5 MW of solar projects on the balance sheet will produce approximately 20 percent gross margin when sold. That is much greater than the 15.6 percent gross margin it produced in the first quarter, and would be added just about directly to the earnings. This clearly justifies how significant the system development business is for Canadian Solar.


Canadian Solar’s debt is manageable and the company’s management has proven it time and again. Given Canadian Solar’s growing profitability and strong guidance, I think the stock still has a lot of room to run and can successfully tackle its debt in the long-term.
Published on May 17, 2016
By Prudent Investor

Copyrighted 2016. Content published with author's permission.

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