Northland: Buy Canadian Solar

Northland’s Pierre Maccagno initiated coverage of Canadian Solar Inc. CSIQ with an Outperform rating and a price target of $36.

Canadian Solar’s growth is expected to be driven by the large and double-digit growth solar installations market. According to Greentech Media, global installations are expected to grow at a 19 percent CAGR between 2015 and 2020 to 139GW, with a majority of the growth being driven by the emerging markets.

Growth is expected to be driven by cost reductions, increasing regions of the world reaching grid parity and policies to control pollution and global warming, analyst Pierre Maccagno said.

Diverse Geographic Project Pipeline Footprint

At the end of 2015, Canadian Solar had a 2.0 GW contracted late stage project pipeline encompassing the US, Brazil, the UK, Japan and China, with a resale value of $4.5 billion and gross profit contribution of $850MM. “In addition it has 398MW of geographically diverse operating solar plants that contribute to revenues through the sale of electricity with a resale value of over $850MM with a gm contribution exceeding 20%,” Maccagno wrote.

Other Advantages

Canadian Solar has been gaining market share and became the second largest supplier of PV modules in 2015. The analyst expects the company to continue gaining global market share with third party PV modules shipments.

Canadian Solar is among the lowest cost manufacturers of PV modules, and the company has achieved this by minimizing capital expenditures with a vertically integrated manufacturing process. Maccagno expects the company’s costs to decline in line with module ASPs.