Canadian Solar Beats Estimates - Analyst Blog

Canadian Solar Inc. (CSIQ), boosted by higher demand for photovoltaic solar modules, reported an adjusted EPS of 47 cents in the third quarter of fiscal 2010, which beat the Zacks Consensus Estimate of 43 cents. The company's results, however, came short of the year-ago quarterly earnings of 69 cents.

Operational Performance

Canadian Solar had revenues of $377.2 million, beating the Zacks Consensus Estimate of $346 million. Revenues were also greater than $328.7 million in the second quarter of 2010 and $213.1 million in the third quarter of 2009. In the reported quarter, the company witnessed high shipment volumes and gross margins. Gross margin was 17.3% in the reported quarter compared to 13.6% in the second quarter of 2010. Increased vertical integration and improved non-silicon processing costs provided most of the gross margin improvement.

Shipments in the reported quarter rose to 200.4 MW, compared to shipments of 181.2 MW for the second quarter of 2010 and shipments of 102.6 MW in the year-ago quarter.

Canadian Solar's upside in quarterly sales came from its global markets, with Europe continuing to be its largest contributor. Revenues from the European market in the reported quarter accounted for 77% of total sales, down from 87.6% in the year-ago quarter.

However in real terms, revenues from the European market increased to $290.3 million from $186.6 million in the year-ago quarter. Canadian Solar has significantly increased its sales to the Asia-Pacific region and America as part of its market diversification strategy. The company generated $25.6 million in revenues from the Americas in the reported quarter compared to $12.9 million last year. Asia and others accounted for $61.3 million of revenues, compared to $13.6 million last year.

Overall net income was $20.3 million in the reported quarter, compared to $3.2 million in the second quarter of 2010 and a net income of $25.3 million in the third quarter of 2009.

Financial Condition

Canadian Solar reported cash and cash equivalents of $296.4 million at the end of the reported quarter, up from $160.1 million at fiscal-end 2009. Long term borrowings increased to $58.7 million from $29.3 million at fiscal-end 2009.

Outlook

Looking forward, Canadian Solar in the fourth quarter of 2010 expects shipments of approximately 220 MW–230 MW, with gross margins in the range of 17%–18%. For fiscal 2011 the company expects shipments of approximately 1,200 MW–1,300 MW. Canadian Solar's focus on hiking production capacity, product differentiation and corporate branding efforts, increasing the conversion efficiency of its solar cells will lower processing costs and benefit gross margin. Canadian Solar has already expanded its annualized internal cell capacity to 800 MW and by mid-2011 plans to expand capacity to 1,300 MW. Margins are expected to improve further in the range of 18%–19% in the first quarter of 2011 itself.

Our Neutral recommendation on the stock indicates that it would perform in line with the broader market. In the near term we believe its Zacks #1 Rank ('Strong Buy') peers like STR Holdings Inc. (STRI), ReneSola Ltd. (SOL) and JA Solar Holdings Co. Ltd. (JASO) are more promising compared to Canadian Solar, a Zacks #3 Rank ('Hold') stock.

 
CANADIAN SOLAR (CSIQ): Free Stock Analysis Report
 
JA SOLAR HOLDGS (JASO): Free Stock Analysis Report
 
RENESOLA LT-ADR (SOL): Free Stock Analysis Report
 
Zacks Investment Research