Barclays Downgrades Canadian Solar, 'Cautious On Leverage'

Barclays’ Jon Windham believes Canadian Solar Inc.’s CSIQ 5.9x 2016 net debt/EBITDA poses greater risk, as compared to other names in Barclays’ coverage, heading into a “margin-challenged” 2017.

Windham downgraded the rating on the company to Equal-Weight, while lowering the price target from $24 to $14.

Cautious Stance

“While management has taken a slightly more cautious stance on capacity expansion and asset monetization, we think the key takeaway here is really the broader issue of unintended consequences of government policy distorting the solar supply/demand relationship on a global scale,” the analyst mentioned.

Windham expects the company to generate gross margins of 12.7 percent in 2017, down from 16.2 percent in 2016.

Related Link: Barclays Highlights Solar Outlook, And How To Play The Long Game

Estimates Revised

The EPS estimates for 2016, 2017 and 2018 have been lowered from $2,35 to $2.00, $2.65 to $1.54 and from $3.15 to $1.66, respectively.

The analyst estimates the value of Canadian Solar’s power plan assets by the end of 2016 at $6-$9 per share, which implies a value of $8-$5 per share and 9x-5x P/E multiple on the module business.

Compelling

Windham views this as compelling, especially given the company’s leading share of the module market and its operating history.

“However, near-term industry risks and SCIQ’s leverage keep us on the sidelines,” the analyst added.

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