Canadian Solar's Higher Capacity Will Lead to Strong Growth

Canadian Solar (CSIQ, Financial) has successfully concluded and connected several utility-scale solar power plants in China, Japan, the U.S. and Canada. Its consolidated energy business has expanded significantly and is presently an energy leader worldwide.

Canadian Solar is believed to be among the three major suppliers of solar modules by volume globally, with complete year shipments of approximately 3.1 gigawatts, exceeding its guidance.

Growth drivers

The widespread launch of strategic power projects across the globe signifies the robustness of the expansion plan designed by the company, positioning it among the top three worldwide power producers.

Crucially, Canadian Solar delivered an overall $240 million or $4.11 per fully diluted shares of net income to its key stakeholders. This solid deliverable makes it the number three among the most profitable solar majors worldwide. In addition, Canadian Solar targets on becoming the highest valued Canadian renewable energy companies, internationally.

Displaying its might, Canadian Solar declared to acquire Recurrent Energy from Sharp for about $260 million. This strategic acquisition of Recurrent Energy, once concluded is believed to significantly expand its worldwide solar project pipeline to nearly 8.5 gigawatts, and is estimated to enhance its late-stage solar project pipeline to about 2.4 gigawatts. This core transaction illustrates the company’s capability to redirect its earnings for prospective expansion, and enhances the investor’s confidence regarding the continued company growth. Canadian Solar continuously eyes on capturing the long-term organic and inorganic growth opportunities. Further, Canadian Solar is on a lookout for strategic options to launch its renewable energy, YieldCo. The company’s expansion plan is hugely supported by its robust balance sheet and strong project pipeline available in smaller-risk areas.

The well-planned future acquisitions of Canadian Solar during the quarter, along with the superior earnings generation, depicts the financial strength of the company and positions it well for a solid future growth.

Canadian Solar has also provided the production guidance for the upcoming quarter with total shipments estimated to be in nearly 1,000 megawatts to 1,030 megawatts range, that includes 55 megawatts of shipments to its own utility-scale solar project.

The notable production guidance offered by Canadian Solar seems to be easily achievable with the presence of solid free cash flows on the company’s balance sheet.

Improving capacity

The company also boasts of having produced approximately 3,000 MW of power capacity as of Dec. 31, 2014 with about 2,500 MW produced in China and the rest 500 MW delivered in Canada.

The fall of the company production in Europe is believed to be significantly balanced by the impressive growths in the U.S. and Asia. Grid parity in some of the markets is even expected to propel growth. The long-term robust growth in Asia is primarily driven by fuel substitution, energy security and environmental concerns. Further, the U.S., China and other developing markets are estimated to accelerate the power demand expansion.

Conclusion

Overall, the investors are advised to invest into the Canadian Solar Inc. looking at the impressive company valuations with the trailing P/E and forward P/E ratios of 8.26 and 7.70 respectively. Also, the stock is much cheaper compared to the industry’s average P/E of 22.60. The PEG ratio of 2.22 depicts slower and costlier company growth compared to the marginally healthier industry’s average of 1.05. The profit margin of 8.09% is satisfactory.

Still, Canadian Solar needs to optimize its debt-laden balance sheet with significant total debt of $1.01 billion against smaller total cash of $549.54 million only, restricting the company to plan for future growth investments.