As I write, it’s a balmy 115 degrees. Hot enough it seems to fry an egg on the sidewalk. While the sear of the sun can be draining… to one industry the heat of the sun does nothing but fill their wallets with money!
What industry am I talking about?
The solar energy industry of course! The powerful sun’s rays that can burn you to a crisp in a few minutes, also deliver a nice economic benefit. It’s a nearly free and endless supply of energy.
With the sun at the zenith, right now is a perfect time to examine solar stocks. So here’s a good one to put on your radar screen, Canadian Solar (CSIQ).
QUICK FACTS
Ticker CSIQ
Industry Alternative Energy
Recent Price $11.34
Market Cap $485 m
Shares Outstanding 42.9 m
Average Volume 351,413
Dividend Yield N/A
Website http://www.canadian-solar.com/
COMPANY DESCRIPTION
Canadian Solar (NASDAQ: CSIQ) is one of the world’s leading producers of solar modules. They provide ingots, wafers, solar cells, modules, and power systems. Pretty much anything solar related CSIQ has a hand in it.
They own eight manufacturing subsidiaries, operate in nine countries and have 9,000 employees.
The funny thing is… despite being called Canadian Solar, most of their operations are in China!
In their first quarter conference call management said Canadian Solar is a bigger player now than it was a year ago. They believe their supply chain agreements should reflect that.
Renegotiating supply contracts is just one measure management is taking to increase productivity. At the same time they are lowering their production costs. The company is attempting to expand their profits by growing sales and holding down costs.
Solar companies often measure their manufacturing capacity in megawatts (MW) and gigawatts (GW). CSIQ’s full year shipment for 2010 was 803 MW, and they expect their 2011 end of the year capacity to be 2.05 GW. That means there is room for Canadian solar to more than double sales!
They’ve also set an aggressive target to obtain 10% of the global market share in the next three to five years.
Lofty goals, but management seems confident in their growth potential and their ability to lower production costs.
FINANCIALS
Last quarter, their numbers were looking strong. Canadian Solar’s net revenue was up almost 32% to $443.4 million when compared to the prior quarter.
Gross Profit surged 55.8% to $65.3 million, with Gross Margin’s climbing to 14.7%. That’s up from 12.2% a year ago. Even net income rose to $5.9 million, with the company reporting an EPS of $0.13! A solid quarter all around.
Longer term, the company is heading in the right direction. EPS has grown from $0.24 in 2008 to a $0.60 profit in 2009, and then jumped to $1.16 at the end of 2010. This is a company that’s having its day in the sun!
Now, it’s not without some struggles.
Sales in Japan were temporarily halted following this year’s earthquake. They have now resumed, and management believes shipments will be back to normal levels soon. They expect growth in Japan’s sales to resume by the third quarter.
The company also seems pretty proud of their U.S. team for aggressive market development. Management said they expect to double sales to the U.S. by the end of 2011! .
KEY METRICS ANALYSIS
Trailing P/E 8.6x
Price / Sales 0.29x
Return on Assets 5.7%
Insider ownership N/A
Short Ratio 4.7x
Current Ratio 1.2x
Total Debt To Equity 156x
RECENT EVENTS
The last few months have been big for Canadian Solar. In May Canadian Solar and Suzhou GCL Photovoltaic Technology announced a new joint-venture. It entails building a plant with a 600 MW wafer capacity, with a future plan of expanding the plant to a 1.2 GW output.
Then on June 7, 2011 Canadian Solar announced a breakthrough on some of their ELPS solar cells. The cell efficiency is up 19.5% on monocrystalline, and 18% on polycrystalline cells.
CEO Shawn Qu said the ELPS cell technology is just one key ingredient in their strategy to lower production costs while simultaneously building a more efficient product.
MANAGEMENT TEAM
Shawn (Xiaohua) Qu – CEO
Weiwen Chen – CFO
Gregory Spanoudakis – President, European Sales
Robert McDermott – Lead Independent Director
STOCK ANALYSIS
Chart courtesy of stockcharts.com
In terms of valuation CSIQ has a few interesting numbers. Their P/E ratio is a tiny 8.9x. Keep in mind that the average S&P 500 company trades for around 14x right now! That means the company is as much as 57% undervalued.
In addition they have a lot of growth prospects.
CSIQ’s 52-week low was $8.25 and the 52-week high was $17.63. Right now the stock is trading at $11.34. The 50-day moving average is near $9.61 a share and the 200-day moving average is at $11.91. The company has a market cap of $485 million and 42.9 million shares outstanding.
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