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We have maintained our Neutral recommendation on Canadian Solar Inc. (CSIQ - Analyst Report) on Aug 27, 2013 on the back of global sales network and brand reputation, partially tempered by the uncertainty in trade and solar energy feed-in-tariff policy in Europe.

Why the Reiteration?

Canadian Solar caters to a geographically-diverse customer base spread across its key markets in Germany, Spain and the U.S., as well as emerging market opportunities in France, the Czech Republic, Italy, South Korea, Canada, Japan and China. The company’s focus on preserving cost leadership while ensuring the high quality of solar products and solutions, expanding the customer base as well as global footprint, enable it to emerge as a strong player with opportunities for growth.

Currently, Canadian Solar’s main objective is to return to profitability. Indeed, the company has reduced its reliance on the European market to minimize the risk associated with the trade dispute between EU and China, as well as to focus on more profitable opportunities in other markets.

The company’s other major source of revenue is the implementation of solar power development projects throughout the world. The company is focused on expanding its engineering, procurement and construction and solar systems kits business.

Despite these positives, we expect the company’s position to be impacted by the industry-wide oversupply and rising competition in the market. Given the industry-wide high inventory level, we do not see any short-term improvement in the company’s margins.

Other Stocks to Consider

Canadian Solar presently retains a Zacks Rank #3 (Hold). However, other stocks that are worth considering in the solar space are SunPower Corp. (SPWR - Analyst Report), JinkoSolar Holding Co., Ltd. (JKS - Snapshot Report) and ReneSola Ltd. (SOL - Analyst Report). While SunPower Corp. carries a Zacks Rank #1 (Strong Buy), JinkoSolar Holding and ReneSola Ltd. hold a Zacks Rank #2 (Buy).

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