Christmas came in mid-summer for solar developers as the Internal Revenue Service extended tax credits for solar projects started by the end of 2019 and completed by 2023. Canadian Solar (CSIQ, Financial) is the largest solar power company by revenue and the best value in the solar market.
To date, Canadian Solar has shipped over 27 gigawatts (GW) of photovoltaic (PV) modules since it started 17 years ago, and currently has a project pipeline of more than 11.1 GW.
While the majority of its $4.1 billion in sales comes from Canada, the company has a number of U.S., projects including the largest solar project in Pennsylvania, the Keystone Solar Farm. Granted, the five-megawatt development can only power 950 homes out of the 4.77 million households across the state, but these are still early days for the industry.
Go back to 1882, and the nation’s first commercial power station generated electricity for only 59 customers in Manhattan. Crowds gathered to watch as the current from Edison Electric Company (now GE) powered incandescent electric lamps. In fact, to win over skeptics, the electricity was free for the first three months. Fast forward 136 years, and we sit on the precipice of the next century of clean energy prosperity.
Canadian Solar is the leader of that change, but there will be bumps along the way. In August, the company beat earnings yet announced that revenue declined 6% year-over-year, coming in $60.9 million below expectations. The company also cut its full-year guidance for revenue and shipments. And, while shipments in 2018 should fall short of prior forecasts due to policy changes in the Chinese market, the company still expects PV shipments to be above 6.0 GW. Compared to its peers, Canadian Solar is the best value right now.
SunPower (SPWR, Financial)
Revenue: $2.1 billion
Income: -$1.1 billion
Mkt Cap: $920 million
P/S: 0.48
P/E: N/A
Sunrun (RUN, Financial)
Revenue: $609 million
Income: $132 million
Mkt Cap: $1.3 billion
P/S: 2.11
P/E: 8.12
First Solar (FSLR, Financial)
Revenue: $2.3 billion
Income: -$192 million
Mkt Cap: $4.8 billion
P/S: 2.09
P/E: N/A
Canadian Solar (CSIQ, Financial)
Revenue: $4.1 billion
Income: $133 million
Mkt Cap: $810 million
P/S: 0.20
P/E: 6.54
More importantly, Canadian Solar will generate over $100 million in net income on $4 billion in revenue in 2018. Simply because the company is not living up to its own guidance this year does not mean the value it brings to market has diminished.
At the end of 2017, Canadian Solar's CEO and top shareholder Shawn Qu announced his intentions to take the company private, offering to buy the remaining 76.5% of its outstanding shares at $18.47 each. At the time, Canadian Solar was trading over $17.50; however, now almost a year later with the stock off 22%, shareholders should reject any lower bids. Even at $18.47 in cash, the implied enterprise value would be around $3.0 billion. Last year, JA Solar Holdings went private after its chairman and CEO completed the buyout of the company. Investors should take the current market volatility as an opportunity to start or add to a position in Canadian Solar.
Disclosure: I am not long/short any stock mentioned in this article.
