Why Is Canadian Solar (CSIQ) Up 12.5% Since Last Earnings Report?

It has been about a month since the last earnings report for Canadian Solar (CSIQ). Shares have added about 12.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Canadian Solar due for a pullback? 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 Q1 Earnings Top Estimates, Revenues Fall Y/Y

Canadian Solar Inc. reported adjusted first-quarter 2019 loss of 29 cents per share, narrower than the Zacks Consensus Estimates of a loss of 44 cents. However, the company’s adjusted first-quarter 2018 earnings were 72 cents per share.

Total Revenues

In the reported quarter, total revenues of this solar cell manufacturer came in at $484.7 million, beating the Zacks Consensus Estimate of $471 million by 2.9%. However, the top line declined 66% from $1,425 million reported in first-quarter 2018.

Operational Update

Solar module shipments in the quarter totaled 1,575 megawatts (MW), down 19.3% from fourth-quarter’s shipment of 1,951 MW. However, the figure exceeded management’s first-quarter 2019 guidance of 1.30-1.40 gigawatt (GW).

Gross profit was $107.4 million, down 25.4% from the year-ago quarter’s level of $143.9 million. Gross margin was 22.2% in the quarter (excluding the CVD reversal benefits). Including the benefits, gross margin was 30.1% compared with 10.1% in the first quarter of 2018, the year-over-year increase was driven by a lower blended module manufacturing cost compared to its previous forecast.

Total operating expenses amounted to $100.8 million, up 53.4% year over year. Selling expenses totaled $37.9 million, down 10.4% year over year. General and administrative expenses were $51.4 million, up 5.3% year over year. Research and development expenses were $13.2 million compared with $9.5 million in the year-ago period.

Interest expenses were $21.7 million, down from $29.6 million recorded in the year-ago period.

Financial Update

As of Mar 31, 2019, cash and cash equivalents were $370.2 million, down from $444.3 million as of Dec 31, 2018.

Long-term debt as of Mar 31, 2019, was $433.5 million, up from $393.6 million as of Dec 31, 2018.

Q2 2019 Guidance

For second-quarter 2019, Canadian Solar expects shipments in the range of 1.95-2.05 GW. This new guidance includes approximately 50 MW of shipments to its utility-scale solar power projects that may not be recognized as revenues in the second quarter 2019.

Total revenues are projected to be $970-$1,010 million, while gross margin is expected to be 13-15%, reflecting the inclusion of the Mustang project sale. Excluding the Mustang project sale, gross margin for the second quarter is expected to be between 16% and 18%

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -49.63% due to these changes.

VGM Scores

Currently, Canadian Solar has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Canadian Solar has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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