Canadian Solar (CSIQ) Q4 Earnings: What's In The Cards?

Canadian Solar Inc. (NASDAQ:CSIQ) is set to report fourth-quarter 2017 results on Mar 19, before the market opens.

Last quarter, the company posted in-line earnings. However, the bottom line missed the Zacks Consensus Estimate in two of the last four quarters, with an average negative surprise of 227.75%.

Let’s see how things are shaping up at the company prior to this announcement.

Factors at Play

For fourth-quarter 2017, the company expects total module shipment in the range of 1.65-1.75 gigawatts (GW). However, this guidance includes approximately 60 megawatts (MW) of shipmentsto Canadian Solar’s utility-scale solar power projects, which may not be recognized as revenue in the to-be-reported quarter. The top line is projected in the band of $1.77-$1.88 billion, with gross margin of 10.5-12.5%.

In September and October 2017, the company agreed to sell a portfolio of six solar power projects totaling 703 megawatt-peaks (MWp), in California, to two Asian buyers. In October, Canadian Solar also agreed to sell interests in three solar projects in Australia, totaling 117 MWp, to Foresight Solar Fund Limited. On the third-quarter earnings call, Canadian Solar stated that it expects these deals to close by end of the fourth quarter.

We believe that revenues generated from these sale outs might drive the company’s top line in the yet-to-be reported quarter. In line with this, the Zacks Consensus Estimate for the Canadian Solar’s fourth-quarter revenues, pegged at $1.06 billion, reflects an annual growth of 58.1%. However, consensus estimate for revenues remains below the company’s fourth-quarter guidance range.

Despite the above-mentioned tailwinds, management stated that the company is lately facing challenges in the form of higher cost of headwinds, including of certain raw materials such as high-purity polysilicon and aluminum extrusion products. Moreover, the appreciation of Chinese yuan and Canadian dollar against US dollar resulted in Canadian Solar’s foreign exchange losses, thus pushing up its production cost in the third quarter. With no major upbeat noticed in these headwinds, we may expect the upcoming quarterly results to reflect similar high production cost for the company.

Furthermore, the Zacks Consensus Estimate for fourth-quarter,earnings reflects a massive year-over-year improvement of 329.2%, most probably buoyed by the rapidly increasing demand in China.

Earnings Whispers

Our proven model does not show that Canadian Solar will beat earnings this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. This is not the case here, as you will see below.

Zacks ESP: Canadian Solar has an Earnings ESP of 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.03. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Canadian Solar’s Zacks Rank #3 increases the predictive power of ESP. However, the company’s Earnings ESP of 0.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Recent Peer Releases

SunPower (NASDAQ:SPWR) reported fourth-quarter 2017 adjusted earnings of 25 cents per share, which surpassed the Zacks Consensus Estimate of 18 cents by 38.9%.

First Solar (NASDAQ:FSLR) incurred fourth-quarter 2017 adjusted loss of 25 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 32 cents by 21.9%.

Enphase Energy (NASDAQ:ENPH) posted fourth-quarter 2017 adjusted earnings of 1 cent per share, which compares favorably with the Zacks Consensus Estimate of breakeven earnings.

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