Considering Canadian Solar Inc. (NASDAQ: CSIQ) the 2016 model of 2012's First Solar, Inc. (NASDAQ: FSLR) or SunPower Corporation (NASDAQ: SPWR), Axiom Capital initiated a Buy rating Monday with an $18 price target.
Five years ago, solar stocks took massive hits, but because First Solar and SunPower had significantly profitable projects in their backlog, they realized earnings well beyond those of their underperforming peers. In fact, over the next three years, the company stocks gained 526 percent and 338 percent, respectively.
“Fast forward to today, we believe Canadian solar is in a very similar position,” Axiom’s Gordon Johnson said on Benzinga's PreMarket Prep radio show.
This is primarily due to the company’s contracts in Japan, which maintain feed-in tariffs (FITs), or energy pricing models encouraging renewable electricity methods, between 26 and 36 cents per kilowatt-hour. That’s more than five times the FITs offered in the United States.
With this sales opportunity alone, Canadian Solar is expected to outperform peers in earnings.
“When this happened with First Solar and SunPower, First Solar stock went from $11 to $70, SunPower stock went from $4 to $40,” Johnson said. “We’re not calling for that type of movement in Canadian Solar stock, but if this starts to gain momentum, which we think it will [...] We think there’s going to be a lot of excitement around the stock.”
And Johnson said the $18 price target is unduly tentative, as it excludes a number of significant sales possibilities.
“Keep in mind, we’re giving very little credit to the bulk of their portfolio,” he said. “We’re only giving them credit for the most easily sellable projects in their portfolio. When you value the portfolio of projects they have and you exclude their net debts, so that accounts for everything they’ve spent on projects to date, you come up with a fair value of $18 per share, 41 percent upside — and we’re excluding probably 3,000 to 4,000 megawatts of projects that they potentially could sell.”
Axiom lends no credit for market opportunities in India, China, Brazil, the U.K. and Australia. If any or all of those come to fruition, the stock could rise to as much as $30 to $40.
Listen to the full interiew with Johnson at 48:05 in the clip below.
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