Canadian Solar: Zacks’ Bull of the Day Play

Canadian Solar (CSIQAnalyst Report) recently posted a very large beat after disappointing investors over the previous four quarters. Today, CSIQ is a Zacks Rank #1 (Strong Buy), and it is the Bull of the Day.

Big Beat for A Change

CSIQ posted earnings of $0.95, topping the Zacks Consensus Estimate by $0.37 for a positive earnings surprise of 55%. That is huge, but I am even more impressed with the revenue of $624M, nearly double the $380M from the year ago levels and $49M ahead of expectations.

Beating on the topline is critical for aggressive growth investors, but we have to see more sales than expected if we are to get the type of earnings growth that will help a stock double in price over the next 12-18 months.

Company Description

Canadian Solar is one of the top suppliers of photo-voltaic (PV) modules to the solar industry. With headquarters in Canada, they also have a thriving business unit in China that builds and sells large-scale PV projects customized for municipal or corporate energy grid applications.

The company has operations in North America, Europe and Asia that allow them to serve a wide geographic base of customers. In addition to their core businesses in building PV panels and larger projects, they also design and produce specialty solar modules and products such as solar-powered bus stop lighting and solar-powered car battery chargers.

 

Tight In The Shorts?

The NASDAQ release short interest information periodically, and we just learned how many shares were short as of the middle of August. The shorts have not only been stung in terms of the stock price moving higher by 29% following the most recent earnings report, but the stock has continued higher still after that.

At the end of June, there were 3.8M shares of CSIQ sold short and with steady daily volume of more than 3.5 million shares a day, the days to cover was only 1.1.

Fast forward to the end of July and the shorts covered about half a million shares and likely covered a good amount more ahead of the earnings release. The big number and nearly 30% jolt in the stock price might have caused some more covering, but by the reporting date of August 15, short interest has moved back to 3.9M shares.

Former Bull of the Day

CSIQ is no stranger to a high Zacks Rank. It has been the Bull of the Day two time this year already. The first time was in February after the big increase in estimates. Just six weeks later it was highlighted again as Kevin Cook bought it for the Follow The Money portfolio he runs here at Zacks.

Prior To The Most Recent Beat

Prior to the most recent beat, CSIQ missed the Zacks Consensus Estimate in four consecutive quarters. That is not what you want to see out of a growth stock, or any stock for that matter. The biggest miss was $0.10 for the December quarter of 2013.

During the streak of misses, CSIQ was able to beat the topline in three of four quarters. So while the earnings might have been off, the increases in sales were there. The company needs to manage the expectations of Wall Street analysts better than they have in the past.

CSIQ Sees Estimates Moving Higher

Estimates for CSIQ have been a little shaky lately. The company didn’t have all that much going on as we ended the year when the Zacks Consensus Estimate stood at $1.66. Even that level was lower than the $1.75 number we saw back in November, but things turned around in 2014. The estimate more than doubled to $3.52 in January and then ran to $3.86 in February. It seemed the sun was shining brightly on this solar play. Over time, estimates slid all the way back to $3.14 in July, but on the strength of the most recent beat, we see the new number at a high of $3.89. 2015 Estimates saw some similar moves, but are not yet above highs made earlier in the year.

Valuation

The valuation for CSIQ is rather attractive. The trailing twelve month PE for CSIQ comes in at 17.5x vs a “NEG” number for the industry average. The forward PE of 9x is well below the 385x industry average. CSIQ sports a mild premium on the price to book metric with a 3.4x multiple compared to a 3.2x number for the industry average, but the price to sales of 1x is well below that of the 1.6x.

The Chart

The price and consensus chart is a very helpful tool developed by Zacks. It shows how the earnings estimates help guide the stock, so as estimates move higher, the stock price generally follows along. CSIQ as a Zacks Rank #1 (Strong Buy) is no exception to that idea. The recent move much higher in earnings is likely to help guide stock to new highs.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

 
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