Canadian Solar Bags Another Module Sale

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by Debra Fiakas CFA
Canadian Solar Logo
Last week Canadian Solar (CSIQ:  Nasdaq) bagged another solar module supply agreement  –  this time on the home turf of some of its staunches competitors.  Of course, the company has its own manufacturing foothold in China.  Canadian Solar is to supply its solar modules to China Three Gorges New Energy Company to a 100 megawatt solar power project in Guazhou County in Gansu Province.  The modules shipments will be complete by the end of the December 2013, suggesting all the sales will end up recorded yet in the current fiscal year.

The Three Gorges sales is not an isolated good news story.  Last month Canadian Solar started work on a 100 megawatt utility-scale solar farm in Ontario for Samsung RenewableEnergy.  The company also won a contract to supply solar modules for a solar power project in Saudi Arabia being built by Saudi ARAMCO, one of the world’s largest crude oil producers.

The trio of analysts who have published estimates for Canadian Solar already through the company could deliver $2.0 billion in sales and $0.47 in non-GAAP earnings per share in the current fiscal year.  This represents a bit over 50% growth over the prior year.  This not a bad feat in a sector that was at one point nearly written off as competition from low-price photovoltaic modules from China threatened to put North American and European producers out of business.

To be sure, Canadian Solar experienced a sharp drop in sales in the last year and even the first quarter of 2013.  However, this year beginning in the June quarter the company turned things around, registering the first year-over-year increase in quarterly sales in three years.  It now appears possible for the company to get back to set a record in sales value.

Profits have been improving as well  –  at least the net loss has been getting smaller with each reported quarter.  The company has reported strong cash generation in the past as well as net profits.  Investments in new solar projects are reported in operating cash flows.  Because of the size and long-term nature of some solar development projects, operating cash flow can be dramatically impacted.  In 2012, a solar project under development took a $300.7 million bite out of cash flow from operations.

Even if profits spark investor interest in CSIQ, they will need to temper their enthusiasm, at least in the short-term.  A review of historic trading patterns in CSIQ suggests the stock has recently risen to over-bought territory.  It would be prudent to wait for a period of trading weakness to take on long positions in the stock.  Still at the current price level the stock is trading at 10.0 times the 2014 consensus estimate.  While this is above the company’s current growth rate it is still an attractive valuation.  For an investor with a long-term investment horizon the current price level justifiable.
Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


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