Summary
Canadian Solar's Q1 results only reaffirm the company's status as a top performer in the solar industry.
Canadian Solar has nearly rallied back to its all-time highs, which can largely be attributed to the company's growing global presence and downstream exposure.
While Canadian Solar is extremely well-positioned for the near-term future, the company faces the risk of falling behind in the long-run if it continues to overlook the distributed solar markets.
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Canadian Solar Continues To Outperform
May. 12, 2015 4:49 PM ET | 2 comments | About: Canadian Solar Inc. (CSIQ)
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary
Canadian Solar's Q1 results only reaffirm the company's status as a top performer in the solar industry.
Canadian Solar has nearly rallied back to its all-time highs, which can largely be attributed to the company's growing global presence and downstream exposure.
While Canadian Solar is extremely well-positioned for the near-term future, the company faces the risk of falling behind in the long-run if it continues to overlook the distributed solar markets.
Canadian Solar (NASDAQ:CSIQ) has been performing extremely well over the past few months, nearly doubling in market capitalization. In keeping with its recent outperformance, Canadian Solar reported great Q1 results. The company has grown to become one of the largest module manufacturers over the past few years, with 1.23 GW of modules shipped in Q1 alone. This figure was on the higher end the company's Q1 shipment guidance of 1.0-1.30 GW. Canadian Solar's quarterly gross margin of 17.8% also fell in the higher end of the company's 16-18% gross margins estimate.
In addition, the company recorded a net revenue of $860.0M, which soundly beat Q1 revenue expectations of $725M-$775M. All of this translated into an impressive quarterly net income of $61.1M, making it one of the most profitable solar companies today. Canadian Solar CEO Shawn Qu expressed his thoughts about the quarter by stating that "This is an exciting time for us to be in the solar industry. All of our hard work since founding the company has positioned Canadian Solar as a strong global leader of the solar industry."
Canadian Solar has propelled itself to become one of the most dominant tier 1 solar module manufacturer over the past few years. Even more impressive, Canadian Solar has also become competitive with the top Chinese solar module manufacturers in terms of module manufacturing capacity. Admittedly, much of this has to do with the fact that most of its manufacturing operations are located in China, although such a feat is impressive nonetheless. By all indications, Canadian Solar will continue to outperform given its rapidly expanding presence in a highly promising global market, and growing involvement in the profitable downstream arena.
Growing Global Presence
Canadian Solar has firmly established itself as a leading solar module manufacturer, competing with the likes of Trina Solar (NYSE:TSL) and Yingli (NYSE:YGE). The company has notably expanded its footprint in the most important developed and emerging markets, namely Japan, Europe, Latin America, and North America. While a disproportionate 49% of company revenues still come from the Americas, Canadian Solar is nonetheless expanding its influence in other important markets.
For instance, Asia accounted for one-third of the company's total revenues, which was led by the promising Japanese market. In fact, Japan represents one of the largest solar markets in the world, which is clearly something that Canadian Solar is well aware of. The Chinese market also played a huge part in the company's Asia market, and is perhaps the most promising solar market in terms of growth potential. Both Japan and China are slated to be among the fastest growing solar markets among the developed nations(China can be considered developed in terms of solar market size), so it will not be surprising to see Canadian Solar's Asia business continue to grow.
Europe also continues to play a large role in the company's international sales, which accounted for 18% of Canadian Solar's total revenue. While Europe is not growing as fast as it had been over the past decade, demand from this region should remain fairly high/consistent. Given that global solar PV demand is rapidly picking up, Canadian Solar has positioned itself perfectly to take advantage of such demand. In fact, CEO Shawn Qu even sees a global supply shortage occurring in the second half of the year due to increasing demand, which should be a massive boon to Canadian Solar's already flourishing business.
It would not be surprising to see the company's gross margins increase well beyond the 20% mark in the likely event of a supply shortage, giving Canadian Solar investors much to look forward to. The time/effort Canadian Solar has spent on expanding its manufacturing capacity and the company's superior awareness of supply-demand trends should leave it much better prepared for a module supply shortage. Canadian Solar is not letting up on geographical/manufacturing expansion, which should great play into its favor given the current environment.
Canadian Solar has grown its business at an incredible rate over the past few years. Here is a graph illustrating the company's shipment growth rate since 2007.
(click to enlarge)
Source: Canadian Solar
Downstream Exposure
Canadian Solar is starting to build one of the most impressive downstream businesses in the industry. The company closed its Recurrent Energy acquisition during the quarter, which should greatly augment the company's project development business. In fact, Recurrent Energy will approximately double Canadian Solar's current project pipeline of 4.5 GW by adding about 4 GW of projects. The Recurrent Energy acquisition will notably increase the company's downstream presence in the North American markets, which is where downstream solar operations are perhaps the most profitable.
Canadian Solar is also improving its downstream project exposure in China, with 320 MW worth of projects potentially being connected in 2015. The company also has many projects scattered across the globe, which will undoubtedly increase overtime. Such an expanding project pipeline will clearly help towards the company's eventual YieldCo strategy, as it will allow the company to add many high quality solar assets to its coming YieldCo vehicle. Rather than building projects in order to sell them, the company is shifting its strategy towards keeping such projects for its expected YieldCo.
While Canadian Solar's downstream exposure in the large-scale solar market is improving, the company's exposure to distributed solar is lacking. With the way the industry dynamics are shifting in favor of smaller-scale solar, Canadian Solar will fall behind competitors if it does not put more emphasis on distributed solar......
Conclusion
Canadian Solar continues to impress in the highly competitive solar industry. In fact, the company's valuation of $2.07B is nearing its historical highs, which is something that the vast majority of leading solar companies are not even close to doing. Canadian Solar has nearly fully recovered from the massive downswing caused by falling oil prices, although it is important to note that oil has very little to do with actual solar PV fundamentals. Despite its recent rally, Canadian Solar is still a solid buy given its increasing global presence, growing downstream operations, and rapidly expanding manufacturing capacity.
http://seekingalpha.com/article/...3361f5464e44909544204&uprof=46
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