Tuesday, November 16, 2010

Canadian Solar Inc. (NASDAQ: CSIQ): Q3 Earnings Preview 2010

Canadian Solar Inc. (NASDAQ: CSIQ) is scheduled to release third-quarter earnings before the opening bell on Thursday, November 18, 2010. Analysts, on average, expect the company to report earnings of 43 cents a share on revenue of $347.47 million. In the year ago period, the company reported earnings of 69 cents per share on revenue of $213.13 million.

Canadian Solar Inc., together with its subsidiaries, engages in the design, development, manufacture, and marketing of solar cell and solar module products that convert sunlight into electricity for various uses in Canada and internationally. Its products include a range of standard solar modules for use in various residential, commercial, and industrial solar power generation systems. The company has seven manufacturing facilities located at Suzhou, Changshu and Luoyang in China. It is also constructing a module plant in Ontario, Canada, which is expected to be operational in early 2011.

In the preceding fiscal-third quarter, the Ontario, Canada-based company'net income was $3.22 million, or 7 cents per share, compared to $17.67 million, or 49 cents per share, in the year-ago quarter. Revenue jumped to $328.68 million from $114.18 million. Analysts, on average, expected the company to report earnings of 15 cents per share on revenue of $305.66 million.

At it last earnings call in September, Canadian Solar said that it has reduced its purchase of third party solar cells in order to improve gross margin and added that it will continue to do so in third quarter and fourth quarter. The company expects to increase its internal quarterly cell output to 127 MW in Q3 and 180 MW in Q4. Third quarter 2010 guidance includes improving the gross margin from 13.6% in the second quarter 2010 to a projected range of 14.5% to 15.5%. The company expects third quarter shipments of around 190 MW to 200 MW. 

For the full year 2010, the company expects shipments to be at the mid- to the high-end of prior guidance of approximately 700 MW to 800 MW. Canadian Solarsaid in September that it expects module pricing to remain relatively stable for the balance of the year 

Looking ahead, the company expects increased internal cell production early next year to enable it to substantially improve its margin structure. The company is likely to benefit from a geographically-diversified customer base, ongoing expansion programs, improving operating efficiencies, rising gross margins, material cost savings through its vertically-integrated production structure, higher captive generation of solar cells and higher conversion efficiency.

Solar industry as a whole has benefited from continues strong demand due to growing awareness about global warming, skyrocketing oil prices, cheap financing and technological advances. Thanks to better cost advantages, Chinese solar module maker have grabbed more market share from their international competitors. Local solar companies have also benefited from China's well-developed supply chain, cheap electricity, supportive policies and even low environmental standards. 

The company's stock currently trades at a forward P/E  (fye Dec 31, 2011) of 8 and PEG Ratio (5 yr expected) of 0.76. In terms of stock performance, Canadian Solar shares have lost more than 50% over the past year.

Full Disclosure: None.
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