Solar Panel Demand Makes Canadian Solar a Buy-the-Dip Opportunity

Canadian Solar, Inc. NYSE: CSIQ is up 12% in mid-day trading two trading sessions after the company reported strong first quarter earnings. The topline revenue came in at $1.70 billion. That was a tick below analyst’s estimates for $1.71 billion. It was, however, above the top end of the company’s guidance of $1.68 billion.  

And on the all-important bottom line, Canadian Solar posted a large beat. The $1.19 in earnings per share was over 60% higher than the 73 cents EPS expected by analysts. At a time when many companies are missing on earnings this is bullish for CSIQ stock, particularly as the company has increased its guidance for the upcoming quarter and the full year. Much of that bullishness has to do with the company’s existing backlog of projects.  

Government Support on Two Fronts 

Canadian Solar expects to be a significant beneficiary of the new six-year investment tax credit being outlined by the Canadian government. If passed, it would provide a 30% tax credit for solar and energy storage projects that are launched through 2033. The plan would then scale down to 15% in 2034 before phasing out completely. 

The Canadian plan is a response to the Inflation Reduction Act passed in the United States. While the intent of the act is to reward companies for onshoring their manufacturing of solar panels in the United States, Canadian Solar, which currently has two manufacturing facilities in the United States and is exploring adding more, expects to receive some of the money that comes from the various subsidies provided.  

What Could Go Wrong?  

Canadian Solar, along with several other solar manufacturers finds itself in the crosshairs of the U.S. Congress. Specifically, there is a movement to overturn the Biden administration’s “solar emergency” that was declared in 2022.  

That emergency placed a two-year pause on all tariffs on solar imports coming from Southeast Asia. This went against the Commerce Department’s recommendation that the emergency be rescinded due to concerns that some Chinese companies were circumventing anti-dumping penalties and solar tariffs put in place over the last decade. The report, which was issued in December 2022, specifically listed Canadian Solar which has manufacturing facilities in China.  

As of this writing both the House and Senate voted to rescind the Biden administration’s policy. However, President Biden has vetoed the legislation and it’s unlikely that Congress will have the two-thirds votes to overturn the veto. 

The Fundamentals Look Strong 

The solar industry is showing strong growth that should continue for the rest of the decade. Canadian Solar has the advantage of being profitable, well capitalized, and with a debt-to-equity ratio of just 0.45%, the company is not overly reliant on debt. That will be important at a time when credit will be harder to come by.  

Canadian Solar is trading near the top of its 52-week range. However, analysts project approximately 9% additional growth for CSIQ stock. And the company is expected to grow earnings at around 26% for the year. Combine that with a price-to-earnings ratio of around 9.5x and this is an attractive solar play.