Despite a weakening solar market, Canadian Solar Inc. (NASDAQ:CSIQ) delivered strong second-quarter results, with key metrics ahead of expectations. In addition, the solar panel maker decided to forego its YieldCo listing and move towards monetizing its assets through alternative means. For Canaccord analyst Jonathan Dorsheimer, the choice to sell project assets could very well become the key to unlocking significant shareholder value.
While the analyst reiterated a Buy rating on CSIQ, he reduced the price target from $29 to $20, which represents a 39% increase from where the shares last closed. Dorsheimer explained, “We are changing our valuation method to no longer add estimated earnings per share from the sale of remaining MW on the balance sheet and instead assume an even spread of sales through 2017. We have also cut our GM assumptions due to these market dynamics and see a significant cut in EPS as a result.”
Dorsheimer acknowledges poor timing on CSIQ’s part, as the solar power leader attempts to navigate dark waters of oversupply and a cyclical downturn. Yet, the analyst appreciates that the company simply wants to “play things safe.”
Dorsheimer explains, “Cash from project sales can also help to delever the balance sheet. Although some of the recent uncertainty can now be put to rest, confusion around revenue recognition and timing of asset sales will likely keep the stock volatile. We believe the company’s cost structure and prudent inventory management should help buoy margins on the module side in the interim.”
In its second quarter, CSIQ came in with revenue of $805.9 million, topping Dorsheimer’s projection of $719.9 million and consensus of $717.5 million. EPS of $0.66 significantly beat Dorsheimer’s expectation of $0.49 and the Street’s estimate of $0.37. Additionally, management reiterated 2016 guidance with a range of revenue between $3.0 billion and $3.2 billion. Guidance for third-quarter is a revenue range between $660 million and $710 million, falling under Dorsheimer’s prior estimate of $767.5 million and consensus of $788.1 million.
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, analyst Jonathan Dorsheimer is ranked #3,881 out of 4,124 analysts. Dorsheimer has a 38% success rate and faces a loss of 6.0% in his yearly returns. When recommending CSIQ, Dorsheimer loses 28.4% in average profits on the stock.
TipRanks analytics exhibit CSIQ as a Buy. Based on 4 analysts polled in the last 3 months, 3 rate a Buy on CSIQ, while 1 issues a Sell. The consensus price target stands at $24.60, marking a 71% upside from where the stock is currently trading.
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