With A Take-Private Deal Still In Play, JPMorgan Downgrades Canadian Solar On Valuation

Shares of solar energy manufacturer Canadian Solar Inc. CSIQ have surged over 24 percent since June on higher gross margins, strong growth and relaxed tariffs.

The Analyst

JPMorgan analyst Paul Coster downgraded Canadian Solar from Neutral to Underweight and reiterated a $15 price target. 

The Thesis

Canadian Solar’s CEO announced a take-private offer in December 2017, and a September company release said a special committee evaluating the offer gave the CEO and possible equity partners a September due diligence deadline, Coster said in the downgrade note. (See his track record here.) 

JPMorgan expects an update from Canadian Solar soon. 

“We believe a deal is possible, presenting an upside risk; however, we believe this risk is mitigated by our view that the original deal price will likely be revised lower owing to significant industry events that have occurred since December 2017, including U.S. tariffs on solar imports and the change in Chinese solar policy announced on June 1," the analyst said. 

Aside from Canadian Solar, Coster said he does not recognize any imminent material cutbacks in production plans in the sector, as solar companies are  lapping strong competition around the world, he said.

“On a positive note, CSIQ has $1.6 billion in operating power plants that can be sold to shore up the balance sheet, and significant declines in polysilicon input costs should help buoy margins.”

Other key drivers of the valuation include:

• The reactivation of the Funning plant, which should lead to higher gross margins.
• Relaxed tariffs on imported Chinese panels.
• Increased government subsidies for solar capacity.

Price Action

Canadian Solar shares were plunging 10.55 percent to $13.44 at the time of publication Monday. 

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