Canadian Solar: Buy Alert

Canadian Solar, Inc. (CSIQ) reported very strong first-quarter results on May 13 that included a dramatic turn-around in net income, which advanced to $18.99 million from a loss of $3.85 million in the same period last year. Not to be outdone, just two days ago the company boosted its full-year 2008 revenue guidance, which gave its stock price a very nice jolt. Moving forward, with alternative energy companies generating more attention and business because of sky-rocketing fossil fuel costs, Canadian Solar should be well positioned to cash in on the trend.

Canadian Solar, Inc. develops solar modules that convert sunlight into electricity, and sells its products to a wide variety of international markets such as Germany and China. The company was founded in 2001, carries a market cap. of $1.35 billion and is headquartered in Markham, Canada.

Impressive First-Quarter Results

The alternative energy sector of the market has been very hot for quite some time now, as consumer and investors alike attempt to shield themselves from the sky-rocketing costs of fossil fuels. This trend was apparent when Canadian solar reported excellent first-quarter results on May 13.

Revenue grew to $171.2 million, a 34% increase from the same period last year. Net income was surged ahead to $18.99 million, up from a loss of $3.85 million in the same period last year. This produced earnings of 61 cents, way ahead of analyst estimates of 29 cents.

A Habit of Surprising

Canadian Solar has been making a habit of surpassing analyst expectations, having surprised over the last three quarters by an average of 13 cents.

The company CFO, Mr. Bing Zhu, said that the three primary drivers for revenue growth were strong pricing power, internal cost cutting measures and favorable currency exchanges. While the currency translations may not be sustainable, Mr. Zhu noted that the company believes it can continue to build its margins through cost controls.

Full-Year Guidance Is Up

After recently commencing deliveries of its solar products to two of its key customers, Canadian Solar went ahead and boosted its full-year 2008 guidance just two days ago, on June 17. The company is now projecting revenues between $750 and $870 million, up from the previous range between $650 and $750 million.

Attractive Solar Valuations

With the increased revenue guidance in hand, this company’s valuations are more attractive. The analyst’s current-year estimate does not appear to reflect the increased guidance, but based upon the existing projection, this company carries a forward P/E multiple of 24X. That is pricey compared to the overall market, but when compared to other solar stocks, it actually looks like a bargain. And this is before the current-year estimate has been revised to include the company’s recent revenue forecast upgrade.

The Chart

After news of Canadian Solar boosting its revenue guidance hit the street, its share price took-off, advancing from just above $39 to its current price of over $51. This is a new 52-week and all-time high. With Canadian Solar operating in a red-hot sector, and the company focusing on cutting costs in order to boost its margins, its earnings should continue to support its stock price as more money pours into alternative energies. Take a look at the chart below.

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