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Canadian Solar (CSIQ) Up 12.5% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Canadian Solar Inc. (CSIQ - Free Report) . Shares have added about 12.5% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Canadian Solar Q4 Earnings Miss Estimates, Down Y/Y
    
Canadian Solar reported fourth-quarter 2016 earnings of $0.24 per share, missing the Zacks Consensus Estimate of $0.29 by 17.2%. Reported earnings also plunged 77.1% from the year-ago tally of $1.05 per share.

For 2016, the company reported earnings of $1.60 per share, beating the Zacks Consensus Estimate of $1.57 by 1.9%.
 
Total Revenue

Canadian Solar recorded total revenue of $668.4 million in the fourth quarter, missing the Zacks Consensus Estimate of $679 million by 1.6%. Revenues were also down 40.3% from $1,120.3 million reported in the prior-year quarter.

Of the total revenue, the American markets comprised 20.7%, Asia represented 62.7%, and the European and other markets contributed 16.6%, compared with the respective year-ago contributions of 51.9%, 41.1% and 7%.

Full-year revenues came in at $2.85 billion, down 17.7% from the year-ago figure of $3.47 billion. The number also missed the Zacks Consensus Estimate of $2.86 billion.

Operational Update

Solar module shipments in the reported quarter totaled 1,612 megawatts (“MW”), up 15.3% from the year-ago level of 1,398 MW. The figure also surpassed the management’s guidance range of 1,400–1,500 MW.

Gross profit was $49.0 million, down 75.6% from the year-ago level of $200.5 million. Gross margin was 7.3% in the quarter, compared with 17.9% in the prior-year quarter.

Total operating expenses were $60.7 million in the quarter, down 36.2% year over year. Operating expenses declined due to lower research and development expenses.

Selling expenses totaled $42.7 million in the reported quarter, up 8.5%. General and administrative expenses were $62.8 million, up 20.1%. Research and development expenses were $3.2 million, compared with $4.8 million a year ago.

Interest expenses were $22.9 million, up from the year-ago level of $17.1 million.

Financial Update

As of Dec 31, 2016, cash and cash equivalents were $511.0 million, down from $553.1 million as of Dec 31, 2015.

Long-term debt as of Dec 31, 2016 was $493.5 million, down from $606.6 million as of Dec 31, 2015.

Guidance

For the first quarter of 2017, Canadian Solar expects shipments in the band of 1.15−1.2 gigawatts (“GW”). Total revenue is expected in the range of $570−$590 million, with gross margin of 13–15%.

For the full year, Canadian Solar expects its total module shipments in the range of 6.5–7.0 GW. Total revenue is expected to be in the band of $4.0−$4.2 billion.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to three lower. In the past month, the consensus estimate has shifted by 32.5% due to these changes.

Canadian Solar Inc. Price and Consensus

 

Canadian Solar Inc. Price and Consensus | Canadian Solar Inc. Quote

VGM Scores

At this time, Canadian Solar's stock has an average Growth Score of 'C', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.




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