After hitting a 52-Week Low of $5.61 two weeks ago, Canadian Solar Inc. (Nasdaq: CSIQ) is trying to put in a bottom, but the overall solar industry 's fundamentals have been challenging for all solar energy stocks. However, it appears that in the case of Canadian Solar, the adage "don't throw the baby out with the bath water" applies. Since the beginning of 2011, solar-cell prices have dropped 43% due to lower government subsidies in the U.S. and Europe, yet all solar energy companies are not created equal in balance sheet health, facilities and technology.
Canadian Solar is diversified in both products and geographic reach. As a vertically-integrated, low cost manufacturer of silicon ingots, wafers, cells, solar modules and custom-designed solar power applications, CSIQ is not reliant on any singular product and thereby not exposing the company to a "catastrophic" surprise in falling prices and/or technology enhancements. The company sells its products to customers in Germany, Spain, the U.S., France, the Czech Republic, Italy, South Korea, Canada and China with operations in 9 countries: Canada, China, Germany, Italy, Japan, Korea, Spain, Australia, and the United States. Revenue from the European market in the last reported quarter was 77 % of total sales, down from 86% in the year-ago quarter, however in absolute numbers the revenue from Europe rose to $369.1 million from $284.1 million in the year-ago quarter. So the decline in geographic representation of revenue was due to the success in expanding distribution reach throughout the Asia Pacific region and the United States. The company increased its revenue from the U.S. from $24.2 million in the 2010 quarter versus $73 million in the reported quarter. The Asia Pacific region contributed $39.7 million in revenue compared with $20.4 million last year.
CSIQ continues to invest in research and development as evidenced by the recent introduction to the market of its 19.5% efficient solar cells. And the company is taking advantage of its low cost manufacturing facilities in China. CSIQ's seven wholly owned manufacturing subsidiaries with a total module capacity of 2.05 gigawatts (GW) gives the company the ability to more than double last year's production without expanding its current factories (CSIQ shipped 803 MW in 2010). Solar module shipments in the reported quarter was 287 megawatts (MW) compared with total shipments of 244 MW in the first quarter 2011.
CSIQ is well situated with cash, cash equivalents and restricted cash of $686.3 million at the end of the reported period, up from $476.2 million at fiscal-end 2010 giving the company the financial flexibility that many of its competitors do not have-- albeit Long Term debt increased to $183.3 million from $69.5 million at fiscal-end 2010. And CSIQ remains cash flow positive with net income of $7.1 million in the first quarter 2011, and $3.2 million for the second quarter of 2010.
Overall net income for the second quarter came in at $7.1 million (net income for the second quarter of 2010 was $3.2 million) compared with net income of $5.9 million for the first quarter 2011. Due to the state of flux in the solar industry at large, any quarter- to-quarter or year-to-year comparisons on revenue and income are only interesting, but not indicative of the future.
Reflecting the challenges in the solar industry are the low market valuations and, in the case of some of the weaker competitors, the recent bankruptcies and M &A activity. Since the beginning of this year, $3.3 billion in mergers and acquisitions have been announced. Canadian Solar's market cap of $262.74 million is very modest considering the company's 2010 revenue was $1.495 billion (43.5 million shares outstanding), but it is difficult to project revenue and margins in the near term. However, it looks well-positioned to be a survivor. And, despite the pricing pressures in solar power, an ancillary benefit is that the survivors will adapt to the lower prices--which will increase demand as the economic value proposition improves.
In summary, Canadian Solar is at an attractive valuation in the solar industry considering it is profitable, building its internal solar cell capacity to reduce reliance on third party solar cells for the manufacture of solar modules, launching a cost reduction program and its low-cost Chinese manufacturing assets. With a sustained rebound in the stock price, the short interest of 4.9 million shares could play a part in near-term volatility in the event of a short squeeze.