Canadian Solar Should Continue to Head Higher 22 comments
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It is never fun being the last one to the party. I have thought for a long time that the solar story was a bad one that would be abandoned the minute the price of oil came back down. With high flying inflation in the energy space, including oil, natural gas and coal prices having bullish charts, the solar story is probably here to stay. I believe many of these names have grown quite fast, but in the long term they seem to be positioned for growth, and thus profits.
The recent earnings quarter from Canadian Solar (CSIQ) was amazing. I looked at the stock before their announcement and decided not to do a write up on the stock as I can't get myself to become bullish in this arena. Although this is after the fact, and the admission of my guilt is no release of endorphins by any means, this company still looks to have a bright future.
CSIQ has a market cap of $1.2 billion and had a consensus EPS of $.31 for the first three months of the year. They beat this number by $.30, or 96.77%, causing the stock tape to move almost perpendicular to the floor. With respect to growth year over year from a first quarter standpoint, they posted earnings of $19 million versus a loss of $3.9 million, or negative $.14 per share. Sales were $171.2 million vs. first quarter of 2007's $17.5 million. Sales beat analyst expectations of $151.9 million. In the fourth quarter of last year, CSIQ had earnings of $5.9 million on revenue $127.5 million.
Europe is by far the biggest growth area, backed by a strong Euro and legislation for renewable resources to be 21% of energy used by 2010. They also increased their earnings expectations for the second quarter to $185-$190 million, which is much higher than analyst's $167.6 million. One part of this information that seems to give a bit of a negative feeling was their 18% increase in shares year over year; it will be something to watch going forward.
Looking at the company's chart, Tuesday morning before the market opening had very high volume and a major push higher for the stock. This trend looks to continue as they have had a continuation on Wednesday May 14th. This volume on Tuesday should place a bottom in the stock at $41.06, and that is where I would get out if you bought then and the stock falls back.
The reason I believe that this stock is a buy at this level is because the sector should push higher on word that they will continue tax incentives in the United States. I know this should not affect CSIQ directly, as most of their exposure is Europe, but I speculate is will resonate through the entire industry.
Lastly, CSIQ was downgraded by Broadpoint Capital and Collins Stewart on May 14th and the stock still headed higher. This stock has really ripped, so you may want to wait to buy until it tests resistance of $41.06, which was the opening price on May 13th; but if you like to take chances, this stock is pushing all time highs and can be bought here.
Disclosure: none
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CSIQ 3USD, that is very speculative between 2 and 2.5 is very optimistis...
Oil under 100 not impossible but a "fall" in the oil prices to even say 105 could just provide the right excuse. At this level, all that is needed is an excuse to run for the exists.
PS German (or any other European, and even a bit less, US, see Akina for a stock that manages to grow administrative expenses faster than sales in this boom period) competitors of these Chinese companies are just dead in the water IMO, especially Ersol, and the price action proves it. It would be nice to say what Jack Yetiv would say about Millenium Solar.
Second, I like to pick the ONE stock I like best in various spaces and I make heavy bets on that stock. Yes, I know I'm supposed to diversify, but I do careful research and if one stock stands out, that's the one I go with.
To me, today, in the solar space, that one stock is TSL. We now have five stocks that have reported very well (LDK, JASO, SOL, CSIQ and YGE today), and TSL has gone up about 10-15% while CSIQ has almost doubled. It's getting hyped a lot, and still offers good value in this space, and it has momentum and a good following now (unlike when I recommended it in Jan).
CSIQ earnings in 2008 are in my view, going to be between $2.50 and $3.00, with $3 more likely than $2.50. CSIQ made $19 million (61 cents) in earnings this quarter on sales of $171 million. Assuming they maintain this operating margin of 11.1% (should not be that hard, in fact, I think CSIQ may well increase that operating margin a bit this year), and if they do $800 million in sales (look at their sales ramp, should not be hard), I get $2.75 per share. I think their UMG silicon sales will push sales to $800 million this year.
That gives CSIQ a 2008 FPE of 16. Still a better value than just about every company in the solar space except TSL.
TSL has a consensus for this year of $3.32 this year (I think they will make $4+), giving it a PE of about 13 against the consensus of $3.32--and TSL hasn't announced yet.
If you take the average upside surprise of the companies that sell in Europe, I would bet it's around 20% (CSIQ was almost 100%!). Add 20% to TSL consensus and you are over $4, yielding a PE of a little over 11.
Also, TSL's operating margin is substantially higher than CSIQ's--14% versus 11% for CSIQ and many other solars.
There are other things I like about TSL, but the long and the short of it is that even if I liked TSL about the same as CSIQ, I would buy TSL because it hasn't run hard, has consolidated forever in the low 40's and finally broke out yesterday on double-over-normal volume.
And it still hasn't reported.
ONE CAUTION: Last year, TSL announced on May 10 that it would announce earnings on May 21. This year, TSL hasn't yet announced when it would announce earnings. This concerns me because I don't know what it means. We can all speculate on the reason, but I would guess the most likely reason is some accounting discrepancy that they are trying to resolve before they announce. That may mean absolutely nothing, or it may mean something.
This does not mean that earnings will be good or bad, but I just wanted to make everyone aware of this.
Jack
Why is usd3 speculative? They made .61 cents in the first quarter, which is usually the lowest quarter, and expect continued growth over the year. Four times .61 is already $2.40. Add some growth as expected, and ouila $3 looks like a reasonable expectation.
Am I missing something?
Jack
P.S. For whatever it is worth, I'm still holding my large position in TSL despite the no-reporting concern I discussed above. I don't think it will, but this could turn out to be a mistake, time will tell.
About German solar stocks you are more than right. These companies were, and are, just sleeping....I mean when i see these companies are already paying dividends instead of investing in solar panels or in corporate offices in Italy, USA, India, China etc or in more production lines(which based in Germany just cost a sh** load of money)....if they would have invested all that money into efficiency...efficienc... of 25% wouldn't be a problem at all at this point but they did not and where is the competitive advantage....in labor costs;)I dont think so
Sure oil fluctuations happen in the short term and could depress those stocks but in the short and long term i do not see it happening...anywhere in between i am open for arguments:)
Concerning CSIQ,.61 cents this quarter....and with the UMG's you will see a three and i am pretty confident about that...would i invest in CSIQ right now at 44$ not so much but if it hits the 35-40 range it becomes very interesting again I sold at $33...and in the chart their is a HUGE gap maybe it will be closed who knows...but i really think the very least they do is earn .61 4x...which brings us to 2.44 for the year...the dollar wont appreciate that fast especially if you look the numbers of the German economy today...all i can say is WOW....the dollar is going to have a tough time because with those numbers from the German Economy nobody can lower interest rates in the EU as much as Sarko and Berlo would like that...but its just not happening....which is an additional factor why oil will stay high in the short term....
I have never heard of Millenium Solar...but i also would like to know more about nanosolar...Kind regards CW
Offers an amazing value, IMO.
Jack
TSL and PWE much more compelling when looking at downside risk versus upside potential.
To Dickie, yes, there is quite a learning curve on the Canroys. Different metrics, different business, different investment goals (less upside, but when you take the dividend into account, there is extremely limited downside).
Jack
Solar millennium it's called.
www.solarmillennium.co...
Interesting concept, more like a solar energy plant. it's just rotating reflective panels with a hot oil system in the focal point, which produces heat and in turn generates a turbine. An energy storage system is connected to it. Their systems are built large scale in Spain. Quite expensive it seems and funded with EC money. Their stock is on the German Xetra market.
Seems I was wrong on your 3 USD. Sorry. Means 60 is even likely, but perhaps with bumps along the way.
Jack, read your oil share report. It's fabulous, but over here in Europe I would be subject to heavy, likely double taxation of foreign dividends (dicki beware) ... I may have around 6% left of the 12%, and have currency risks, so for me it's not an option.
Thanks for the tip but I trade out of the States....No thank you to German tax codes which tax dividends (bond yields) pretty heavy...but that is subject to change...in return you have to tax capital gains and everything else @ 25%...which in the past you never had to concerning stocks(if you held over a year)....where do you trade out of?Because I thought in the Netherlands(where I would have assumed you are from),their is no taxes on capital gains o. div. but surely might be wrong...with kind regards from Germany...
ps @Jack do you have a couple of good sources concerning information for Conroys tried to find a few things but my success was quiet limited....
I know nothing about taxation in Europe (except that it's higher thans ours, but that may not last if Demo's come to power here), but don't you have a similarly high (50%) tax rate on capital gains from buying and selling stock like CSIQ, for example?
If so, then a 50% tax rate oin dividends isn't that different, is it?
Jack
In Germany if you sell stocks in less than a year...you pay taxes at your personal tax level...same for bonds or dividends,and then it depends on what income class you are in....so usually taxes are not your friend...unless you hold a stock longer than a year...then you pay 0% taxes on capital gains...(so it is not really the same at this point).from 1st of January 2009 on everything gets taxed at 25% no matter what(excluding funds)...but as I said I trade out of the States and the German tax code does not apply to me in this case...so please if you do have a couple of sources where I can find good info concerning PWE I would be very appreciative because those Div's sound very tempting but I have to know more...
Also, obviously their is a lot of Europeans interested(in the Tec DAX ,for ex., there are 8 out of 30 stocks which are solar....the Tec Dax is the equivalent of the NASDAQ).I started investing a few years ago in American and Chinese "Green" stock's...a lot of us saw it as an opportunity because we knew the Green Wave would catch the US at the latest when the Gas got soooo expensive because your economy is just build on Oil/Gas/Coal and with demand picking up in the developing countries....and also we do not want to forget global warming...
If you think about what Solarworld did for example(not sure if you heard of the company)....they appreciated 50 fold....5000%(and plus 12000% if you just count the last FIVE years) and many others had great performances.I missed out on that opportunity in Germany.
This was, and is, not going to happen twice to me...Their is soooo much cheap land in the US....Consider that Germany has the population of 80 mil. and is about as big as Florida and half of Georgia(if that)....The density is way too big in Germany for large scale solar farms....So the future is in your country and others with an abundance of land....who doesn't see it now and does not invest in it will feel like me after missing out on many German solar stocks....(which I would actually sell at this point because they did not make proper use of the advantage they had....)...Kind Regards
Spend a day or two reading all the articles there and you will know a lot about the Canroys.
Jack
From Belgium.
No share profit taxes at all, unless you do more than 100 deals a years, in which case you'll be paying income tax as you''ll then be regarded as a professional. Ridiculous! Helps me keep my number of transactions low.
But EU regulations are coming in to spoil that party from next year onwards with steadily increasingly higher stock trade profit taxes.
I invest mainly in European renewables to. Mainly wind energy though. Vestas, Gamesa, Nordex, Repower, the last 2 are german stocks and somethign you should really consider. Also consider Q-cells in the solar space in youre country, it's the largest solar cell producer worldwide and a fast growing company.
Btw. i am not tax exempted i Belgium. Rather it's a 10% tax when selling with a gain. But thats fairly low all considerd.
for other recommendations I have made and the price targets on them.
@Piggy bank Vestas, Nordex, Repower are quiet the buys...but what I heard is from a friend at the EU commission for Energies...Enercon and Choren when they have their IPO just buy, buy and buy....Will see if they(the IPO'S) take place anytime soon.
Also Piggy Bank don't burn your fingers with German solars....they are expensive and didn't make use of their early entrant advantage at all(total mismanagement in my opinion)...i would be very beware of whats next for most of German solar companies...With kind regards from Germany