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Dark Clouds Over Canadian Solar As Company Misses Earnings Estimates, Dims Guidance

Dark Clouds Over Canadian Solar As Company Misses Earnings Estimaes, Dims Guidance
By: Micheal Kaufman
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Canadian Solar Inc.’s (CSIQ) stock price was down 8.6% today (at 9:45 EDT) after the company – which provides a range of commercial, residential and industrial solar power generation systems – reported its earnings results for the first quarter of its 2014 fiscal year (1QFY14; ended March 31, 2014) before the opening bell.

The Ontario-based company reported revenues of $466.3 million for the quarter, a 77% increase year-over-year (YoY). The figure was in line with consensus estimates. The substantial growth in revenues was attributable to higher shipments of solar modules. During the quarter, the company shipped solar modules with a total capacity of 500 megawatts (MW) – a 47% increase YoY, and above its guided range of 470-490MW.

The company had beat revenue estimates for two consecutive quarters before these results.

Canadian Solar reported net income of $4.07 million for the quarter, compared to the net loss of $3.92 million it had incurred in the same period of last year. On a per-share basis, this translates into adjusted earnings of seven cents, compared to the Street’s estimate of 12 cents. This is the third quarter running for which the company has posted a profit. However, the company had missed earnings estimates for consecutive quarters before this one, but by smaller margins of 4.4% and 6.7%, respectively.

Competitor SolarCity Corp. (SCTY) released its own financial results for 1QFY14 last week. It had reported a 112% increase in revenues to $63.5 million, beating analysts’ estimates of $53.4 million by 18.9%. Another peer, First Solar, Inc. (FSLR), saw revenues increase 26% YoY to $950 million in the quarter, trumping consensus estimates of $837.8 million by 13.4%.

Guidance

For the current quarter, the company expects revenues to be between $560-590 million, which, at the midpoint of the range, will signify 51.2% growth YoY and fall far short of the consensus estimate of $638 million. The company has also said it expects to record solar module shipments of 600-630MW during the period: at the midpoint of that range, this implies only 35.2% growth YoY.

For solar module shipments in the full year, the company has reiterated its earlier guidance of between 2.5 and 2.7 gigawatts (GW). This can be seen as a defensive step, given that SolarCity and First Solar have raised their own guidance. SolarCity expects to deploy 500-550MW of solar electricity systems, up from its prior guidance of 475-525MW. According to First Solar CEO James A. Hughes, the company has also identified 12.2 GW of potential new contracts over the next few years, and 59% of these projects are expected to come from outside the US.

Industry Outlook

This year, global demand for solar energy is expected to increase 30% YoY to 48GW. China will lead with 25% of total demand, while the US, Japan, and Germany are expected to account for 16%, 10%, and 7%, of global demand in 2014.

Analysts’ Outlook And Valuation

Eight analysts currently cover Canadian Solar, of who five have given it a Buy rating, while two have recommended it as a Hold. The average 12-month target price for the stock is $48, which translates into an upside of 89.6% from yesterday’s closing price of $25.32.

Among notable financial services institutions, Goldman Sachs (GS) is Neutral on the stock with a price target of $40, while JPMorgan & Chase Co. (JPM) has an Overweight stance and a target price of $50.

Canadian Solar’s stock price was hovering near its 52-week high in early March, just before the company reported its fourth-quarter earnings. Since then, the stock price has shed about 40%. However, considering the last twelve months, the stock is still up 275%.

It is currently trading at a one-year forward price-to-earnings (P/E) multiple of 5.9x, which is a discount of around 19.5% to its average one-year average forward P/E of 7.3x. The company is also trading at a discount of 66% to the forward P/E of FirstSolar, which is 17.4x.

As of 9:45 am EDT, shares of SolarCity and FirstSolar were down 2% and 1.3% respectively, having taken a hit as a result of Canadian Solar’s weak financial results.

What’s your take on Canadian Solar? Leave a comment for our analysts below!

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