Earlier this week Canadian Solar (CSIQ) increased the mid-range of their revenue guidance by 13%. Then, that same evening, they announce they were diluting shares by offering 3.5 Million new ones at $34 each. A significant dilution. The shares surged, then have since pulled back - appropriately.
But take a look at this, the last four quarters earnings are, according to yahoo finance, in order:
$-0.11 $0.02 $0.20 $0.61
Analysts estimates for the 2nd and 3rd quarter of this year are:
$0.45 $0.55
CY estimates are $2.18 and next year’s estimates are $3.52
Well, talking pre-dilution, and considering the raised guidance they should at least meet the previous estimates (made before the raised guidance)… this is going to mean, within the next four months, the ttm eps are going to go from $0.72 to (hopefully) at least $1.81. More than cutting the P/E ratio in half, if the stock stayed flat.
After the dilution that $1.81 figure falls to $1.61. The current P/E is about 50. Even if the multiplier fell to 25, it’s still a $40 stock looking at the ttm, four months could bring. Obviously, provided they have a good four months and maintain the positive outlook. My point isn’t really that the PE could be halved, and share holders still win, it’s that within the next two quarters this stock is going to start showing up on allot of stock screens. I mean, replacing that $-0.11 with a $0.45 quarter, will get this stock noticed.
I would also like to comment on the pull-back due to dilution. At the time of writing the stock was at $31.70, and before the announcement, the stock closed at $38.20.
At $38.20 CY EPS estimates are $2.18 and next year analysts see $3.52. After the math from the dilution, CY EPS estimates become $1.93, and $3.12. That means this recent drop of $6.50, meant the ttm PE of 53 has fallen to 49.7, the CY PE has fallen from 17.5 to 16.4, and FPE from 10.9 to 10.2. Clearly, either the street over-reacted to the upped revenue guidance in the first place, OR, the street over-reacted to the dilution and the shares are both price point cheaper AS WELL AS fundamentally cheaper. I should also add, the company is fiscally stronger after a dilution too.
Bottom line, the stock pulled back 17%, but should have only pulled back 11.3%, assuming it was fairly valued at $38.20.
Update: Practically as I was writing this, some other news was hitting the wires.
Disclosure: I wrote $35 puts for July, and will likely be assigned the long underlying position tomorrow.
