Thursday, July 16, 2009

Canadian Solar (NASDAQ:CSIQ): Oppenheimer calling for a big Q3; target raised to $19

Oppenheimer is out very positive on Canadian Solar (NASDAQ:CSIQ) raising their tgt to $19 from $14 following checks at Intersolar. Firm notes they are growing more positive on CSIQ as they believe high cost inventory has been burned through, units and margins should rebound, and 3Q Street estimates could prove conservative. They remain cautious on the sector overall, but believe CSIQ shares still have room to run.

Intersolar checks. Opco met with companies across the solar supply chain and left feeling more comfortable with 3Q demand trends, but less comfortable with industry ASPs and 2H linearity (4Q should be down sequentially vs. Street expectations, which model-in linear growth). Still, they believe CSIQ's story is intact and feel comfortable with their 5/21 upgrade.

Costs approaching $1.50/watt. CSIQ has burned through its high cost inventory and can now produce modules near $1.50/watt (~$0.90/watt for wafers and ~$0.60/watt for cell/module processing). With this cost structure, CSIQ can price aggressively to gain share while easily maintaining a mid-teens or better gross margin.

Expect a big 3Q; Street conservative. Solar peers are currently running at >70% utilization, yet 3Q Street estimates for CSIQ model-in 45-50%. CSIQ should at least track the industry (or even gain share) due to its better cost/pricing structure; firm sees >30% upside to consensus revenue and expects GMs well above the Street's 11% estimate.

Raising estimates and PT. They raise their 2009 and 2010 revenue/EPS estimates to $476M/$0.28 and $655M/$1.04 vs. consensus at $454M/$0.05 and $634M/$0.80.

Notablecalls: This call should generate some further upside in the CSIQ stock.

PS: Wanted to add that I think there are a lot of shorts in this one and they are likely to feel some heat...thinking CSIQ can go to $13.50 or even $13.85 if it really gets out of their hands.

Note that Nomura is out upgrading CSIQ to Buy this morning.

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