Bull of the Day: Canadian Solar (CSIQ) - Bull of the Day
Canadian Solar (NASDAQ: 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 applications.
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 their highs.
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 First Solar (NASDAQ: FSLR) trading at 30X forward EPS estimates, much less SolarCity (NASDAQ: 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 Portfolio.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.
CANADIAN SOLAR (NASDAQ: CSIQ): Free Stock Analysis Report
FIRST SOLAR INC (NASDAQ: FSLR): Free Stock Analysis Report
SOLARCITY CORP (NASDAQ: SCTY): Free Stock Analysis Report
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