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Canadian Solar – Mixed Earnings, Too Much Exposure To Europe

Canadian Solar (CSIQ) became the latest solar company to release its results for the difficult June quarter and the picture is becoming increasingly clear – it was a terrible quarter, margins have been crushed but for solar as a whole it’s largely all priced in now. The stock itself had a bad day, down 5.7% and may see some further downside. However, for solar as a whole this is the story that the market is getting used to and the price action in the sector has been beginning to show some resilience. We are expecting one final flush down alongside another sell-off for the overall market and will use those lower prices to start re-building a solar portfolio.

In terms of the Canadian Solar numbers for Q2 itself, revenues actually beat expectations, coming in at $481.8m against expectations of $449.8m and up 46.6% on the year. That was on the back of healthy module shipments of 287 MW, up 58.6% on the year. However, earnings per share came in at only 16 cents against expectations of 28 cents.

Canadian Solar is a good company with some strong customer relationships. However, its best customers are in Germany and its revenues come overwhelmingly from Europe. In the latest quarter 76.6% of revenues still related to Europe, down only slightly from 86.4% a year ago.

Going forward Europe is likely to remain a difficult market and solar players are of course looking to the US utility-scale market, China with its new FIT system and Japan for example to take up some of the slack in global solar demand. As a result, when we starting picking up solar exposure we’ll probably leave Canadian Solar alone for now. More on our solar picks in an article to follow.

Disclosure: I have no positions in Canadian Solar.