Why Investors Are Running Away From Canadian Solar After Earnings

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Canadian Solar Inc. (NASDAQ: CSIQ) reported fourth-quarter and full-year 2016 results before markets opened Tuesday morning. For the quarter, the solar panel maker posted adjusted earnings per share (EPS) of $0.24 on revenue of $668.4 million. In the same period a year ago, Canadian Solar reported EPS of $1.05 on revenue of $1.12 billion. Fourth-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.32 and $690.27 million in revenue.

For the full-year, Canadian Solar reported adjusted EPS of $1.60 and revenues of $2.85 billion, compared with 2015 EPS of $2.93 and revenues of $3.47 billion. Analysts were looking for EPS of $1.65 and revenues of $2.93 billion.

The company booked a $44.1 million “true-up” reserve to cover the federal duties on importing solar cells from either China or Taiwan. The company said it is protesting the amount and that since February it has not imported into the United States any cells from either China or Taiwan. Solar cells from other Southeast Asian countries are not covered by the same U.S. import rules.

CEO Dr. Shawn Qu said:

Results for the fourth quarter and full year 2016 were inline with our expectations, other than the unfavorable preliminary ruling on AD/CVD rates by U.S. Department of Commerce. We achieved record high total solar module shipments in the fourth quarter and the full year 2016. Despite strong demand levels, our revenue for both the fourth quarter and full year was lower compared to the prior year’s periods due to the industry-wide declines in average selling price that have been persistent all year. … Importantly, we are actively monetizing our operating solar power plant assets.

Canadian Solar sold five solar plants in Canada for $310 million, sold two in China for $32 million and is in the process of selling its U.S. plants. The company said it plans to continue to develop solar projects for sale to end customers in an effort to deleverage its balance sheet and redeploy capital to support profit growth.

In its outlook statement, the company said it expects first-quarter 2017 revenue in the range of $570 million to $590 million with gross margin of 13% to 15%. Fourth-quarter gross margin was 7.3%. For the full year, Canadian Solar forecast revenues of $4.0 billion to $4.2 billion. Analysts have forecast first-quarter revenues of $679.03 million and full-year revenues of $3.29 billion.

The misses on both earnings and revenues combined with the shaky first-quarter revenue estimate weighed on the shares Tuesday morning. The stock traded down about 6% shortly after Tuesday’s opening bell, at $12.74 in a 52-week range of $10.25 to $20.05. The 12-month consensus price target is $15.21.