Sunday Nov 27, 2022

Canadian Solar Has Received a Few Notable Tailwinds – GuruFocus.com

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China is reportedly seeking a $220 billion stimulus package to revive its economy. You may ask, what on earth does this have to do with Canadian Solar (CSIQ, Financial)? Well, the news has sent many renewable energy names soaring because, according to the International Energy Agency (IEA), China produces more than 80% of the renewable energy supply chain’s building blocks and could reach 95% in the coming years.

As such, renewable energy exposure in the midst of Chinese economic stimulus could be beneficial because it implies cheaper operating costs and higher operating capacity for installers of solar panels around the world.

Furthermore, the U.S. has agreed to lift tariff rates on Canadian renewable energy products, which could notably boost Canadian Solar as well.

Canadian Solar is one of the world’s largest renewable energy manufacturing companies and could be one of the primary beneficiaries of the latest shift in global economic and renewable policies. In the coming years, Canadian Solar could be set to benefit from the U.S. tariff release and Chinese economic stimulus.

Operational review

Canadian Solar recently beat its first-quarter earnings target by 23 cents per share. In the quarter, the company amassed revenue of $1.25 billion, a 14.7% year-over-year increase. Furthermore, Canadian Solar provided second-quarter guidance, including expected shipments of 4.9 to 5.1 gigawatts, which could add up to revenue of $2.3 billion.

Recent highlights pertaining to Canadian Solar’s operations include its commitment to carve out its CSI Solar business unit via an IPO. The CSI Solar unit is receiving enormous traction with 161% year-over-year growth, and a carve-out could be beneficial to the unit’s branding.

Lastly, Canadian Solar exhibits solid holistic growth as its five-year Ebitda CAGR stands at 30.32% and its five-year earnings from continuing operations CAGR is also growing exponentially at 30.55%.

Valuation

What stands out for me in Canadian Solar’s quantitative metrics is its price-sales ratio. The stock is trading at a 2.56-fold discount to its sales, implying that investors are underscoring the company’s top-line earnings. Additionally, Canadian Solar’s revenue has a 24.70% CAGR trajectory, causing its price-sales ratio of 0.39 to be even more impressive.

Furthermore, Canadian Solar’s price-earnings ratio of 32.13 might seem overvalued if looked at in isolation. However, if one pairs its PEG ratio of 0.79, it’s clear that the company’s earnings per share growth is on an exponential trajectory. Thus, Canadian Solar’s price is still low compared to the company’s growth profile.

Concluding thoughts

Canadian Solar is at an excellent price level after drawing down by more than 25% since this time last year. The company will likely benefit from the U.S./Canada renewable tariff release as well as a possible $220 billion stimulus of the Chinese economy that would go a long way towards supporting renewable energy adoption.

Source: https://www.gurufocus.com/news/1809446/canadian-solar-has-received-a-few-notable-tailwinds

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