Recent shifts in the mobile-phone industry prompt strategic revisions for AT&T Inc. (NYSE:T) while noteworthy business opportunities arise for Canadian Solar Inc. (NASDAQ:CSIQ). Two analysts weigh in with detail on their views of the potential outcomes for each stock.
As the mobile-phone industry experiences a regression in the handset upgrade demand, the mobile carrier AT&T prepares accordingly. Analyst Jennifer Fritzsche of Wells Fargo adjusts her estimates for the company’s upcoming 1Q16 financial results in response, reiterating a Buy rating on AT&T and increasing her price target from $40 to $42.
As the company’s equipment revenue follows this decelerating new trend, the analyst adjusts her revenue estimates as a response, stating, “We are adjusting our Q1 equipment revenue estimate to $2.7B (-20% yoy).” Fritzsche doesn’t expect this decrease to impact AT&T’s margins. She adds, “We note this equipment revenue is margin neutral, or essentially a pass through. So while lower revenue is optically tough to see, it does not impact margin or EPS.”
Fritzsche believes AT&T has demonstrated competitive initiative by pushing EIP plans to customers before main competitor, Verizon. According to the analyst, this move secures an increase in service revenue, as equipment revenue is expected to fall. The analyst states, “We note that because T embraced the EIP plan earlier than VZ, it has relatively easier comps on the service revenue line. We estimate service revenue will grow 0.5% yoy, the first positive growth since Q1 2014.”
According to TipRanks, the analyst has a 63% success rate and provides an average return per recommendation of 17.4%.
Canadian Solar Inc.
The solar energy company, Canadian Solar, has recently taken strategic moves to increase its margins, address PV module demand, and prepare for a new solar energy project permit in China. Analyst Colin Rusch of Oppenheimer has a positive view on the potential outcomes of these preparations. The analyst explains why he reiterates a Buy rating with a 12-month price target of $45 on the stock.
Last week, Rusch discussed the marketing aspect of Canadian Solar with Shawn Qu, the company CEO, concluding that the company’s efforts are undervalued. Rusch states, “We see the value of its project pipeline as potentially larger than the value of CSIQ’s market capitalization, depending on how the company monetizes those assets.” Separately, Rusch points to the company’s production efforts to improve margins, stating, “At the same time, we believe Canadian Solar is poised to see significant margin improvement as it ramps its Thailand facility and increases wafer and cell capacity.” He elaborates, “We understand the company could reach vertically integrated module manufacturing costs <$0.30/W by the end of 2017 vs. its previous projection of $0.32/W.”
Rusch believes the company’s efforts are timed well. He adds, “We believe the company is continuing to see strong demand for volumes through the end of 2Q:16.” In regards to China’s market, CSIQ’s permit for 2015 is coming to an end, and the analyst is counting on the country’s National Energy Agency (NEA) to reform a better permit structure for the following years, stating, “We believe the NEA wants to move to a competitive bidding process and is collecting feedback from provincial governments on moving in that direction.”
According to TipRanks, Colin Rusch has a success rate of 47% and delivers an average return per recommendation of 11.4%.