As the solar panel sector continues its painful overhaul, signals are emerging about who will survive the downturn and thrive when the industry returns to health. Canadian Solar (Nasdaq: CSIQ) certainly seems to be one of the strongest players coming out of the retrenchment, with word that the company has sold 4 more plants that it constructed to private buyers. Canadian Solar is quickly emerging as a strong executor of this particular strategy, which sees its construct power plants using its own solar cells and then eventually selling those plants to private sector buyers. Rival Suntech (NYSE: STP) also tried such a strategy, but poor execution made it backfire and dragged the company into bankruptcy.
All that said, we still do need to be slightly skeptical of Canadian Solar, which is showing a tendency to make multiple announcements that sometimes repeat previously disclosed information. Canadian Solar's success in the build-and-sell strategy does also seem to be limited-- so far-- to plant construction in Canada, so we'll have to see if it can replicate the model in other markets where it may not have such strong connections.
According to the first of 2 separate announcements issued by the company last week, Canadian Solar sold 2 plants with a combined 16 megawatts of capacity and valued at about $100 million to TransCanada (Toronto: TRP). (company announcement) Canadian Solar doesn't say how much TransCanada actually paid for the plants, which seems to imply it may have sold them at a discount to their actual value. The deal was part of a previously announced plan to sell 9 plants to TransCanada for nearly $500 million, and marks the second and third sales in that bigger deal.
The second of the announcements looks similar, but is more interesting because it involves the sale of 2 other self-built plants to a fund managed by BlackRock (NYSE: BLK), a top U.S. fund house (company announcement). No price was given, but the announcement says the plants with combined capacity of 20 megawatts in the Ontario area were sold at a price comparable to similar recent sales in the area. From my perspective, the most encouraging element of this piece of news is the fact that BlackRock was the buyer, as this demonstrates that Canadian Solar knows how to build plants that will appeal to true financial-sector investors.
Stock buyers seem to like the Canadian Solar story, bidding up the company's shares sharply in recent weeks. The company's stock is up more than 50 percent since the beginning of September, and has risen nearly 6-fold for anyone who was foresighted enough to buy the shares at the beginning of the year. Canadian Solar has also been notable as one of the only major players to forecast a return to profitability this year, with the company recently reiterating its aim to be profitable for the full year 2013.
Other players that look set to survive the nearly 3-year-old downturn have also rallied sharply this year, with shares of Trina (NYSE: TSL) and Yingli (NYSE: YGE) both more than tripling since the start of the year. Both companies have reportedly been bidding to buy major assets from Suntech, which is hoping to soon emerge from a bankruptcy reorganization that will most likely mark the end of its life as an independent company.
All of these latest developments, combined with China's recent pledges to strictly limit construction of new panel plants, look like they could finally lift the industry out of its doldrums. If the current trends continue, we could see Canadian Solar become the first of the major players to return to profitability in its upcoming third quarter report, with other major players gradually returning to the black over the next few quarters.
Bottom line: Canadian Solar's sale of 2 power plants to a BlackRock managed fund reflect strong prospects for its business model, boosting its chances to return to profitability this year.