Check on China: Canadian Solar Inc.
Don’t be fooled by the name: even though Canadian Solar Inc. (Nasdaq:CSIQ) technically incorporated in Canada, all of its manufacturing operations (along with its corporate headquarters) are in China — a profitable niche to be in, especially speaking in energy terms.
The solar energy market has grown exponentially over the last several years, as nearly $2 billion of venture capital flooded the marketplace worldwide. The stock market value of solar energy companies ballooned 4,750% globally between 2003 and 2007, proving that Canadian Solar is in the right panel.
The company designs, manufactures and sells a range of standard solar modules for use in a variety of residential, commercial and industrial solar power generation applications. The company also designs and produces custom solar modules and products built to its customers' specifications.
The solar energy market is booming in all the places where the company has customers. Germany, for example, is the world's largest market for solar panels; Spain, which provides generous government subsidies for energy alternatives, ranks just behind Germany and is building Europe's largest solar energy plant. Japan is the third largest solar market and the world's largest net exporter of photovoltaic solar cells and modules. The United States is a distant fourth, but the domestic solar market grew 57% in 2007. In China, companies are pouring millions into solar power operations across the country to capitalize on Beijing's goal of having renewables make up 10% of all energy use by 2010.
Although solar power may account for less than 0.01% of the world's total energy production today, the demand for solar has grown about 30% annually over the past 15 years, according to SolarBuzz, a solar energy research and consulting firm (comparatively, the demand for fossil fuel-based energy sources has grown between 0% to 2% per year). And some experts predict solar energy has the potential to make up 10% of total energy production within the next 20 years.
Even so, the solar industry faces some formidable obstacles, including worldwide polysilicon shortages, inadequate government incentives, compatibility issues with existing electric grids, a maze of political red tape and high costs for consumers.
While solar stocks, including Canadian Solar, have seen their ups and downs as of late, on March 5 the company beat Wall Street expectations and swung into the black, reporting impressive fourth-quarter results and projecting a bright first-quarter outlook.
Revenue skyrocketed five-fold to $127.5 million, due largely to sales growth in German and Spanish markets. Quarterly earnings came in at $5.5 million, or $0.20 a share, compared with a loss of $5.1 million, or $0.21 a share, in the previous year. The company expects first-quarter revenues of $150 to $155 million, versus analysts' consensus of $138.73 million, while full-year 2008 revenues are projected between $650 million and $750 million, versus the consensus of $711.05 million.
Canadian Solar expects to ship products with 40 megawatts worth of annual generating capacity during the first quarter, with a goal of lifting production capacity to 250 megawatts in 2008, up from its current 100 megawatts of capacity. The company said it had secured nearly all of its necessary raw materials (silicon, wafer and cell) to meet production for the entire year.
The company has come a long way in the past year. After flirting with bankruptcy earlier in the year, the company's stock hit an all-time low of $6.50 in August 2007. Since then, shares have gained more than 270%.
The Street is optimistic on Canadian Solar. Broadpoint Capital upgraded Canadian Solar to "strong buy" from a "neutral" on March 6, setting a $29 target and raising their 2008 margin and EPS estimates. The next day, analyst Dan Ries of Collins Stewart maintained his "buy" rating and upped the target price to $31 from $25, commenting on the company posting fourth-quarter revenues and EPS ahead of the Street's view. Analysts at investment bank Lazard Capital Markets upgraded the firm to "buy" from "hold" on March 26, with a target price set to $24, mentioning that the company continues to strengthen its long-term competitive positioning by building a flexible sourcing model, insulating it from potential supply and demand problems. On April 3, Piper Jaffray added the company to their Alpha List with a “buy” rating and a $32 price target, citing accelerating demand and healthy pricing trends for solar components.
Despite volatility in the sector, Canadian Solar continues to soak up the sun. Shares closed Wednesday at $24.20. The stock has traded between $6.50 and $31.44 over the past 52 weeks.
About the Author
Shannon Roxborough previously worked as a global risk analyst, and lived in China for nearly two years.
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