Canadian Solar (NASDAQ:CSIQ) trades at a huge discount to First Solar (NASDAQ:FSLR) because CSIQ stock is not really Canadian.
They’re based in Guelph, about an hour outside of Toronto, and they have a module assembly plant there. But that plant stems from a “buy Canadian” requirement.
Much of Canadian Solar’s work is done in China, where it has two locations outside Shanghai. It depends for raw materials on a polysilicon plant in Xinjiang where an explosion in July sent prices skyrocketing. One of its largest power projects is also in Xinjiang. CEO Shawn Qu is a native of China.
It’s like the old joke, “I’m as English as Queen Victoria.” “So, your father’s German, you’re half-German and you married a German?”
Catching Foreign Equity
Compared with First Solar, Canadian Solar is undervalued, despite a rise of nearly 80% so far in 2020. Shares open for trade Oct. 15 at $39. That’s a market cap of just $2.34 billion, 9.3 times earnings, and two-thirds last year’s sales, which were $3.2 billion.
Canadian Solar is also diversified. It not only manufactures panels but installs them and claims an order backlog of 15 GWatts. It has double-sided panels and has claimed efficiency of nearly 24%.
The stock is still subject to a “China discount” caused by its Chinese ties. The solution is to start raising money there, starting with a $260 million debt offering, followed by a Chinese IPO covering the production business.
There’s a second discount on the stock, a failed 2018 effort to buy out public shareholders and take the company private. The offer was for $18.47 per share, less than half the current price. This followed a 2017 spin-off of Japanese power assets as the Canadian Solar Infrastructure Fund, the parent retaining just 14.7%. The moves still anger some investors, but at the time solar was distinctly out of fashion, shares bottoming below $12 in mid-2018.
Trouble Ahead?
Canadian Solar’s China ties have a second downside. It gets treated like a Chinese company by its rivals.
The company is being sued for patent infringement by both Solaria, a small U.S. panel producer, and by Maxeon (NASDAQ:MAXN), the Sunpower (NASDAQ:SPWR) spin-off based in Singapore. With so much of its work being done in China, Canadian Solar is also subject to the “Trump thump” of higher tariffs.
Many Moving Parts
There are a lot of moving parts to Canadian Solar. It may be the most global solar company out there. It has subsidiaries in 20 countries, customers in 160 countries and 17 manufacturing plants. Unlike First Solar, which is strictly a panel maker, Canadian Solar is also a developer, often selling utility-scaled projects before they’re fully built.
The complexity comes from CEO Shawn Qu having his feet on both sides of the growing U.S.-China divide. In a time of growing nationalism, such globalism is out of favor. In Chinese stories about the company, Qu is referred to as Dr. Xiaohua Qu.
The Bottom Line
Canadian Solar next reports earnings on Nov. 10, with $860 million of revenue expected and a small loss of 4 cents per share. Analysts are divided on the stock, with two saying buy it and two saying hold. The average price target is $33, well below its current value.
I’m more favorably disposed to Canadian Solar stock than First Solar. It’s growing, it may still be undervalued, and I like globalism. I think they’re more likely to deal effectively with the next moves in solar technology than First Solar is because of that globalism.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn
