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Nicholas Kitonyi
Nicholas Kitonyi
Articles (319)  | Author's Website |

Canadian Solar: Focus on Long-Term Growth After Earnings Beat

The stock fell more than 5.4%

May 28, 2020 | About:

Canadian Solar Inc. (NASDAQ:CSIQ) posted impressive earnings results after it beat analysts' expectations for revenue and earnings for the third time in four quarters. The company announced its fiscal first-quarter results before the market opened on Thursday.

The company’s share price pulled back more than 5.4% after Dr. Shawn Qu, the chairman and CEO, issued a cautious statement about the outlook for the second half of the year amid the Covid-19 pandemic.

“While COVID-19's impact on the demand for our products and services was limited in the first quarter, we remain cautious given the market uncertainty and expected softness in the second half of 2020,” Qu said.

Nonetheless, Canadian Solar’s long-term outlook remains solid with promising industry fundamentals. Qu pointed out the company’s exciting energy business, which could benefit from lower average selling prices on equipment in the coming quarters.

This will boost its profitability on contracted projects. Canadian Solar will also benefit from lower interest rates after the economic effects of the coronavirus prompted various governments around the world to cut rates.

“The low interest rate environment makes our solar projects even more sought-after as countercyclical investment assets,” Qu added.

Highlights from first-quarter results

In the most recent quarter, Canadian Solar posted earnings per share of $1.84, up 734.48% from the same period last year. Analysts were expecting earnings of 86 cents per share. Net revenue also impressed with a 70.33% increase to $825.6 million, which beat the estimate of $792.6 million. This also exceeded the company’s own revenue guidance for the quarter of $780 million to $810 million.

Gross profit for the quarter more than doubled after ticking 108% higher to $223 million. The gross margin also improved to 27% after adding 480 basis points from the same period a year ago.

The company shipped 2.2 gigawatts of PV modules, up 41% from the prior-year quarter. This was in line with its guidance of 2.15 GW to 2.25 GW. As of March 31, Canadian Solar’s portfolio of utility-scale solar power plants had a 956-megawatt peak at an estimated total resale value of $830 million. This illustrates how strong the company’s position is in the energy business given its market capitalization of just over $1 billion.

Valuation

From a valuation perspective, shares of Canadian Solar are currently trading at a price-earnings ratio of 6.42. This appears compelling when compared to close peers SunPower Corp.’s (NASDAQ:SPWR) multiple of 10.82 and First Solar Inc.’s (NASDAQ:FSLR) value of 113.43. However, JinkSolar Holding Co. Ltd. (NYSE:JKS) appears even cheaper after plunging more than 33% this year to trade at a price-earnings ratio of 5.14.

Canadian Solar’s earnings are still very volatile to provide a reliable estimate for the foreseeable future. As such, the company did not issue guidance for second-quarter earnings per share when it gave revenue guidance of $630 million to $680 million. However, First Solar and JinkSolar’s PEG ratios (five-year expected) of 0.80 and 0.26, respectively, indicate that the industry has a bright future.

In summary, Canadian Solar’s current valuation suggests there is room to grow. The intermediate future is still blurry with earnings volatility expected. However, the long-term outlook, as pointed out by the CEO, remains promising.

Disclosure: No positions in stocks mentioned.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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