Canadian Solar, Inc. CSIQ made a 12% surge during mid-day trading, two trading sessions after reporting strong earnings in the first quarter. The company’s revenue slightly missed the analysts’ estimate, coming in at $1.70 billion, just below the expected figure of $1.71 billion. Nonetheless, it exceeded the upper limit of the company’s projected range of $1.68 billion.
Canadian Solar posted a significant beat on the bottom line, with $1.19 earnings per share (EPS), which is more than 60% higher than the projected 73 cents EPS mark by analysts. This is an excellent performance, considering that many firms are falling short of market expectations. It is positive for CSIQ shares, notably as the company has increased its forecast for the subsequent quarter and full year. Most of this optimism arises from the company’s current pipeline of projects.
Government Backing on Two Fronts
Canadian Solar anticipates being a significant beneficiary of Canada’s new six-year investment tax credit that grants a 30% tax credit for solar and energy storage projects launched in Canada till 2033 if passed. Subsequently, the plan’s tax credit rates will drop to 15% in 2034 before phasing out completely.
Canada’s policy is a reaction to the Inflation Reduction Act passed in the United States. Although the legislation aims to reward companies for manufacturing solar panels in the United States, Canadian Solar, which has two manufacturing facilities in the US and is exploring establishing more, expects to get some of the subsidies granted.
Potential Risks
The U.S. Congress is targeting Canadian Solar, along with various other solar manufacturers. Specifically, there is a movement to overturn the “solar emergency” declared by the Biden administration in 2022. This declaration resulted in a two-year pause of the tariffs on solar imports from Southeast Asia. It went against the Commerce Department’s recommendation to revoke the emergency due to China-based firms bypassing anti-dumping penalties and solar tariffs imposed during the last ten years. The December 2022 report explicitly listed Canadian Solar, which has manufacturing units in China.
At the moment, both the House and Senate voted to cancel the Biden administration’s policy, but President Biden has vetoed it, indicating that Congress is unlikely to muster the two-thirds votes required to override the veto.
The Fundamentals Appear Robust
The solar industry is seeing expansion that should continue for the rest of the decade. Canadian Solar is profitable, well-capitalized, with a low debt-to-equity ratio of just 0.45%, making the company not overly dependent on debt, which is crucial when credit may become harder to obtain.
Canadian Solar is trading nearly near its peak 52-week range. Nonetheless, analysts forecast about 9% further growth for CSIQ shares. Moreover, the company is expected to report earnings growth of approximately 26% for the current year. Combined with a P/E ratio hovering at around 9.5x, this equates to an attractive solar investment.
The article “Solar Panel Demand Makes Canadian Solar a Buy-the-Dip Opportunity” first appeared on MarketBeat.
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