Canadian Solar Stock Worth $40 Sum-Of-The-Parts, Roth Capital Says

• Canadian Solar Inc. (NASDAQ: CSIQ) shares are down 28 percent in the last six months, and have been hovering around $23 in December.
• Roth Capital Partners’ Philip Shen maintained a Buy rating on the company, with a price target of $40.
• While management is targeting a yieldco launch in 1H16, the company has several options, Shen stated.

Analyst Philip Shen wrote, “The company's module business is healthy and robust, in our opinion, while Total Solutions continues to be poised to generate a substantial amount of value for the company.” Management is still targeting a yieldco launch in 1H16, since it believes this will create greater shareholder value over time, provided market conditions normalize.

Canadian Solar has optionality to create value from its development pipeline of about 10GW, Shen said. He explained that a sale of the 2.5GW of late stage pipeline alone could boost the company’s revenue by $5bn. This is estimated to add $750mn of gross profit and about $10 per share in earnings.

Alternatively, management could sell a part of this pipeline to generate revenue and earnings. Canadian Solar has the option of pursuing a joint venture or partnership with strategic investors. A collaboration with an established yieldco is also possible, albeit lower on the priority list, Shen commented.

In the report Roth Capital Partners noted, “At a ~$1.3bn market cap, we believe shares are undervalued. With a $1bn value for the module business, the market is valuing the company's project business at just $300mn, highlighting meaningful upside, in our view…Our $40PT is based on our sum-of-the parts valuation.”