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Canadian Solar (CSIQ) Down 7.7% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Canadian Solar (CSIQ). Shares have lost about 7.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Canadian Solar due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Canadian Solar Q2 Earnings Top, '19 Shipment View Up

Canadian Solar Inc. reported adjusted second-quarter 2019 earnings of 77 cents per share, which surpassed the Zacks Consensus Estimates of 23 cents by a massive 235%. In the year-ago quarter, the company had incurred adjusted loss of 6 cents per share.

GAAP earnings came in at $1.04 per share in the quarter under review compared with 26 cents in second-quarter 2018.

Total Revenues

This solar cell manufacturer’s total revenues of $1,036.3 million outpaced the Zacks Consensus Estimate of $1,006 million by 4.6%. The top line also improved 59.3% from $650.6 million reported in second-quarter 2018.

The year-over-year improvement can be attributed to better-than-expected module shipments in second-quarter 2019.

Operational Update

Solar module shipments in the quarter totaled 2,143 megawatts (MW), up 36.1% from first-quarter shipment of 1,575 MW. Moreover, the figure exceeded management’s second-quarter 2019 guidance of 1.95-2.05 gigawatt (GW).

Gross profit amounted to $182.6 million, up 14.6% from the year-ago quarter’s level of $159.4 million. Gross margin was 15.5% in the quarter (excluding the AD and CVD benefits). Including the benefits, gross margin was 17.6% compared with 24.5% in the second quarter of 2018.

Total operating expenses were $121.9 million, up 25.6% year over year. However, selling expenses of $45.4 million declined 12.7% year over year on account of increase in shipping and handling costs, and project transaction fees associated with the higher quarterly revenue level.

General and administrative expenses summed $65.7million, up 16.5% year over year. Research and development expenses were $12.1 million compared with $9.1 million in the year-ago period.

Interest expenses were $20.7 million, down from $26.6 million recorded in the year-ago period.

Financial Update

As of Jun 30, 2019, cash and cash equivalents totaled$438.5 million, up from $370.2 million as of Mar 31, 2019.

Long-term debt as of Jun 30, 2019, was $462.9 million, up from $433.5 million as of Mar 31, 2019.

Guidance

For third-quarter 2019, Canadian Solar expects shipments in the range of 2.2-2.3 GW. This guidance includes approximately 160 MW of shipments to its utility-scale solar power projects that may not be recognized as revenues in the third quarter.

Total revenues are projected to be $780-$810 million, while gross margin is expected to be 24-26%. This reflects the positive impact of planned higher gross margin project sales primarily in Japan and the United States.

For 2019, Canadian Solar raised its guidance for total module shipments to the range of approximately 8.4-8.5 GW from 7.4-7.8 GW projected earlier.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -20.18% due to these changes.

VGM Scores

Currently, Canadian Solar has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Canadian Solar has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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