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Top Solar Analyst Explains Canadian Solar Downgrade

Top Solar Analyst Explains Canadian Solar Downgrade

Axiom analyst Gordon Johnson downgraded Canadian Solar Inc. (NASDAQ: CSIQ) to Hold Friday after the firm’s CEO reported a take-private offer of $18.47 per share.

The rate not only suggests 29-percent downside to Johnson’s fair value estimation of $26, but also implies inflation in Axiom’s modeling assumptions.

"Anecdotally, the way we take it is CEO is telling us that we're being a bit aggressive in our valuation approach,” Johnson said on Benzinga's PreMarket Prep show.

However, Johnson adjusted his thesis with reluctance.

"The downgrade on CSIQ is a tough one because we really like the long-term story,” he said, praising the firm’s management team.

Risks Cloud Near-Term Performance

The ratings update partly reflects fresh near-term risks to earnings.

Canadian Solar’s fourth quarter estimates assume the sale of projects expected to have been sold in the third quarter to Korea Electric Power Corporation (ADR) (NYSE: KEP) and China’s Shenzhen Sungold Solar Co. Ltd. — revenue that could be delayed by trouble from the Committee on Foreign Investment in the United States.

“Given that Congress is about to go on break, we think there's a lower probability that CFIUS approves these projects before year-end,” Johnson said. "If this does not happen, we believe there's going to be a significant cut to Canadian Solar's Q4 revenue and EPS.”

While the projects could come through in 2018, according to Johnson, a KEP-less Q4 could realize revenue of just $1 billion against $1.7 billion estimates, with earnings per share down to 57 cents against $1.04 estimates. Those cuts, in turn, could pressure the stock and compound investor concerns about the sales timeline.

Here’s To A Brighter 2018

Meanwhile, the potential for a buyout does lend Canadian Solar a “floor,” Johnson said, but the firm may sell for less than it’s $18.47 offer.

“If this deal were to fall apart and the board didn’t approve, I think the floor on the stock would come out, as well as the potential ceiling, but we just see a number of near-term risks to the stock,” he said. “You can hold the stock, and if you’re willing to hold it for a year, you’re fine, because I think next year has bright things for them.”

Latest Ratings for CSIQ

Aug 2020GLJ ResearchInitiates Coverage OnBuy
Jul 2020JP MorganMaintainsNeutral
May 2020CFRAUpgradesHoldBuy

View More Analyst Ratings for CSIQ
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