Canadian Solar: a Strong Buy

Canadian Solar (CSIQ) announced second quarter ended June 30, 2016 total revenue of $805.9 million, up 11.7% sequentially from $721.4 million during first quarter of 2016 and an increase of 26.6% year-over-year from $636.7 million in the second quarter of 2015. Going forward, the company estimates third quarter of 2016 revenue to be in $660 million to $710 million range.

Robust growth

Canadian Solar declared second quarter of 2016 net income of $40.4 million, or $0.68 per diluted share, up 79 percent sequentially from $22.6 million, or $0.39 per diluted share in first quarter of 2016 and an increase of 126 percent year-over-year from $17.9 million, or $0.31 per diluted share in second quarter of 2015.

The global solar power products manufacturing company reported continued sequential and year-over-year growths in both its top and bottom lines primarily driven by the ongoing significant demand for cleaner source of energy or cleaner fuel, increasingly attracting the global enterprises towards using renewable source of energy such as, solar energy and thus, hugely benefiting the international solar equipment manufacturer.

The worldwide investments in renewable sources of energy has achieved a new high regardless of the declining non-renewable fuel prices that signifies the rising global concern about preserving environment while popularizing the usage of renewable energy.
Canadian Solar: a Strong Buy
Image by jniittymaa0 / Pixabay
Going forward, international yearly PV installations is estimated to surpass 60 GW during 2016 at a CAGR of 38.1% while expanding at a CAGR of 8.3% beyond 2016 and till 2022 primarily driven by significant growth drivers such as grid parity, environment preservation concerns and achievement of energy security.

A big market  

Canadian Solar is expected to be truly a global renewable energy company with international presence in over 18 countries and having shipped more than 15 GW of advanced solar modules till date. In addition, the company has planned, built, developed, and connected over 1.8 GWp capacity of innovative solar power plants including the recurrent plants as well.

Moreover, there’s significant expansion opportunity in this sector as solar is believed to be only in the very early stages of adoption. Importantly, solar energy is estimated to expand from approximately 0.5% of worldwide electricity generation now to over 10% by the fiscal year 2030. Also, the major markets of Canadian Solar such as China, Japan and US are believed to be extremely under-explored and poorly penetrated thus, posing a significant growth opportunity for the company as the global PV installed volume for solar energy is projected to expand seven times to more than 1,835 GW during 2030.

The globally expanding demand for cleaner sources of energy is particularly encouraging the key energy production and distribution companies to consistently increase investments in exploring newer technologies to harness solar energy in a bulk and that too cost-effectively. Therefore, there’s notable expansion opportunity for Canadian Solar over the longer term to deliver sustainable long-term growth while offering attractive shareholder returns.

Impressive pipeline

Canadian Solar is expected to be having an industry-leading and globally well-diversified project pipeline including, 20.4 GWp of consolidated project expansion pipeline, 2.4 GWp of overall late-stage or contracted project pipeline, approximately 472 MWp of consolidated operated and owned resale of key solar driven plants valued at $850 million while contributing industry-leading profit margins. Further, there’s an additional 900 MWp expansion capacity for the full-year 2016 and having an attractive $1.25 billion of resale value.

The Canadian solar power generation company is believed to be a market leader for the US solar energy market and having a total of 1,129 MWp key project backlog that comprises of energy production and distribution through North America in several stages such as 3.4 GWp in early-stage pipeline, 1,129 MWp in late-stage pipeline and over 842 MWp of consolidated power development projects built, executed and sold across the US.

The impressively well-diversified and extremely attractive project pipeline and backlog of Canadian Solar depicts notable global demand of solar energy which is bound to continue to benefit the solar energy major while allowing it to consistently deliver attractive shareholder returns.

Conclusion

Overall, the investors are advised to “Hold” their position in Canadian Solar Inc. considering the company’s significant long-term growth prospects but, currently weaker financial position with notable total debt of $2.45 billion against weaker total cash position of $495.11 million only, restricting the company to make future growth investments. The profit margin of 4.45% seems satisfactory. However, the PEG ratio of 0.61 seems misguiding and depicts weaker near-term company growth.
Published on Sep 14, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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