Canadian Solar (CSIQ) has dropped almost by half from its highs in the last three months.
The builder of solar panels and full solar energy systems saw an enormous run-up in 2013, followed by the sharp drop this year.
Nitin Kumar of Nomura released a note last night saying the selloff is overdone. He was one of the first analysts to start banging the drum for Canadian Solar last year when the stock was still trading in the single digits. It eventually got up to the mid-$40s, and it's now back to the low $20s.
In his latest note, Kumar cut his full-year revenue numbers and target price for the company, as Canadian Solar cut its second-quarter guidance, even though it maintained its full-year outlook. Kumar had previously had a target price of $55. He has reduced that to $45. Yet he points out that more than 100% upside remains from the current price.
- Kumar believes that investors have been worried about several issues regarding Canadian Solar over the past few weeks, including:
- The lowered guidance, for the first quarter, due to weather, and now for the second quarter, due to delays in projects.
- Concern that China will not show solar demand for this year of 13GW to 15GW, instead coming in at 11GW to 12GW.
- Concern about the pace of permitting for Canadian Solar's high-margin Japanese projects.
These are the most recent and specific concerns. Kumar already believes that the stock and the solar stocks in general have also been hurt by concerns about an impending ruling from the U.S. International Trade Commission, which is due next month, a pullback in momentum stocks having to do with the macro environment and lower China demand for solar.
Nomura used to price Canadian Solar on a price-to-book basis. Since the company has morphed its business model over the past year to be a mixture of solar modules and solar energy projects, Nomura believes that the stock deserved to trade at a higher price-to-book ratio that was more in line with a project focused peer group.
In the most recent report, however, Nomura also presented Canadian Solar as a sum-of-the-parts story, taking into account its solar module business and project business. Nomura still arrives at a price target of $45 a share, on the basis of a price-to-earnings multiple of 10x on the module business for the company's 2015 business and the net present value of its projects business.
Together, the module business is worth just under a billion dollars, and the project business has a value of almost $1.4 billion. At the moment, Canadian Solar has a total market cap of $1.2 billion.
Kumar points out that, even if you are worried about the Japanese permitting process and you zero out all the Japanese projects, the company should still be worth almost $2 billion, or $37 a share.
Trina Solar (TSL) is seeing its shares rise more than 20% this morning because of strong full-year guidance. Perhaps Canadian Solar will be able to deliver on its promise of strong second half performance and start to bridge the gap to Nomura's big targets.
At the time of publication, Jackson had no positions in stocks mentioned.