Saturday, July 12, 2014

Canadian Solar Inc. (CSIQ): Going to $40 Says FBR capital

On an otherwise red day, Canadian Solar Inc. (NASDAQ:CSIQ) is bobbing higher, up nearly 1% as we type. The alternative energy company is the beneficiary to two positive news items to start the post 4th of July trading week.

First, CSIQ announced that its wholly owned subsidiary, Canadian Solar Solutions Inc., on Monday, June 30, completed the sale of the 10 MW AC Val Caron solar power plant ("Val Caron") valued at over C$60 million to One West Holdings Ltd., an affiliate of Concord Green Energy ("Concord"). The Val Caron 10 MW AC solar power plant is located in the city of Greater Sudbury, Ontario.

[Related -Canadian Solar Inc. (CSIQ) Q1 Earnings Preview: Sun Usually Doesn't Shine]

It is the first of five planed solar project sales to Concord Green Energy, says Dr. Shawn Qu, Chairman and Chief Executive Officer of Canadian Solar.

Piggy backing on the sale news, FBR Capital upgraded Canadian Solar to an "Outperform" recommendation from "Market Perform" while maintaining their $40 price-target, which is potential upside to target of 29.24% as of this keystroke.

FBR made the call because the analyst believes the market is undervaluing the company's diverse project pipeline.

Canadian Solar Inc., together with its subsidiaries, designs, develops, manufactures, and sells solar wafers, cells, and solar module products worldwide. The company operates in two segments, Module and Project. Its products include various solar modules that are used in residential, commercial, and industrial solar power generation systems.

[Related -Canadian Solar Inc. (CSIQ) Q4 Earnings Preview: What To Watch?]

On a price-to-sales (P/S) basis, FBR Capital has a point. Canadian Solar is under-priced relative to its peer group. The average sun stock trades at 2.79 times sales while CSIQ trades at 0.87 times revenue.

Since 2009, investors have been willing to pay an average of 0.53 times sales for CSIQ with a range of 0.05 to 2.44. So, the "green" energy maker might be undervalued relative to peers the current price is well above the norm on a P/S basis.

For 2015, the street sees sales of $3.35 billion. At CSIQ's five-year average P/S ratio, the stock would price out at $33.73. It looks a lot better with the industry average at $177.56. To hit $40 requires a P/S ratio of 1.59, which could be a little rich.

From a chart-watcher's perspective, $35 looks like a better target is it would complete a triangle pattern. Get above $35 and $40 does offer resistance, but a run at the 52-week high of $44.50 is just as likely post -$35 as $40. That being said, the recent run-up has not been confirmed by rising volume, which means Canadian Solar could slip if sellers show up in moderate strength. 

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