On Tuesday, Wells Fargo maintained its Equal Weight rating on Canadian Solar shares (NASDAQ:CSIQ) but lowered the price target to $23 from $28. The revision reflects a more conservative outlook due to increased capital expenditure forecasts and a reduced sum-of-the-parts (SOTP) valuation multiple.
Canadian Solar is anticipated to experience a significant increase in shipments and margins throughout the year, bolstered by a robust energy storage backlog, the stabilization of distributed generation inventories, and anticipated price increases linked to a rebound in demand. Despite these positive expectations, Wells Fargo has adjusted the price target to account for the high execution risk associated with meeting the company's guidance.
The new price target of $23 per share is based on an updated capital expenditure forecast that projects annual spending to reach $1.35 billion in the year 2026 and beyond, an increase from the previously estimated $1.2 billion. Additionally, the SOTP multiple used in the valuation has been lowered to 3.5 times from 5.0 times.
The valuation methodology employed by Wells Fargo combines a three-stage discounted cash flow (DCF) model and a sum-of-the-parts analysis. The adjustment in the price target is a direct result of this blended approach, taking into consideration the heightened capital expenditures and the modified SOTP multiple.
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