A Better Takeover Offer For Canadian Solar Is Unlikely: Here's Why

The list of solar companies that have been taken private may see the addition of Canadian Solar Inc. CSIQ. The company's chairman, president and CEO Dr. Shawn Qu offered shareholders $18.47 to buyout the company, but some investors are anxiously awaiting if a superior bid will be presented.

The Analyst

Axiom's Gordon Johnson downgraded Canadian Solar's stock from Buy to Hold with an unchanged $17 price target.

The Thesis

Qu's takeout offer of $18.47 may be as good as an offer investors will ever see for three key overhangs surrounding the stock, Johnson said in a note. These include:

• The company's sale of solar projects to KEPCO in the fourth quarter will likely be delayed to the first quarter of 2018, which implies a "severe cut" in revenue and EPS in the fourth quarter;
• The company's higher than expected margin sale of solar assets to Shenzhen Energy could be at risk according to some experts; and
• The possibility that the financing for the go-private deal would not materialize.

Nevertheless, the takeout offer put a floor on the stock and the analyst's view of the company's long-term project asset sales remains "favorable." At the same time, the few near-term execution risks could result in another year of margin contraction in the core module business.

Price Action

Shares of Canadian Solar are up 45 percent in 2017.

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