Solar energy specialist Canadian Solar (NASDAQ:CSIQ) — which specializes in the manufacturing of photovoltaic (PV) modules and operating large-scale solar projects — saw its shares pop significantly higher on Tuesday. Investment firm BlackRock (NYSE:BLK) announced it’s buying preferred equity in the solar company’s Recurrent Energy unit. Subsequently, CSIQ stock also soared on a much-needed credibility boost following a tumultuous period in 2023.
According to a Bloomberg report, the preferred equity is convertible into a 20% stake in Recurrent Energy. Per the business unit’s website, Recurrent ranks among the world’s largest and most geographically diversified utility-scale solar and energy storage project development, ownership and operations platforms. Canadian Solar will continue to own a majority of the business, per the article.
Moreover, the fresh capital — an investment worth $500 million — will help Recurrent expand its project development pipeline. In addition, the funds will help the business arm transition into being a developer and long-term owner and operator of assets in markets including the U.S. and Europe. Notably, this transaction represents the first by BlackRock’s fourth climate infrastructure fund.
Over the long run, the agreement supports BlackRock’s ambitions to establish a foothold in the burgeoning market for alternative assets. This month, Bloomberg points out that the investment firm agreed to buy Global Infrastructure Partners — a private equity firm focused on core resources — for approximately $12.5 billion.
CSIQ Stock Looks Forward to a Sector Rebound
For CSIQ stock, the BlackRock deal allows the underlying enterprise to reinvigorate its subsidiary. According to Bloomberg, Recurrent featured a development pipeline of 26 gigawatts in solar and 55 gigawatt-hours in storage as of the end of September. However, the investment will exclude the unit’s project development business in Japan and China, along with some assets in Latin America.
Moreover, CSIQ stock enjoyed a much-needed credibility boost. Last year, both Canadian Solar and the broader solar industry struggled against various economic headwinds. These included the combination of stubbornly elevated inflation and high interest rates, which negatively impacted demand. Also, rising labor costs crimped solar companies at just the wrong time, leading to layoffs across the industry.
Still, some positive signs are on the horizon, which could benefit CSIQ stock over the longer term. Perhaps most notably, solar enterprises shot up in December as Federal Reserve Chair Jerome Powell hinted at possible interest rate cuts in 2024. If so, the move would mark a significant departure from the prior hawkish monetary policy. Further, reduced borrowing costs may help reinvigorate demand.
Plus, Grand View Research notes that the global solar energy systems market reached a valuation of $160.3 billion in 2021. Further, experts believe that the sector could expand at a compound annual growth rate (CAGR) of 15.7% from 2022 to 2030, implying industry revenue of $607.8 billion.
Why It Matters
At the moment, Wall Street analysts rate CSIQ stock as a consensus moderate buy. However, it’s a fairly split opinion, breaking down as three buys, three holds and one sell. Overall, the average price target lands at $31.14, implying nearly 31% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
