Electrification And Storage Expansion Will Unlock Future Opportunity

Key Takeaways

• Strong global demand, expanded energy storage, and innovation position Canadian Solar for sustained growth and improved margins.
  
• Geographic and policy diversification enhance resilience, revenue stability, and the ability to withstand regulatory or regional shocks.
  
• Margin pressure and earnings visibility are threatened by rising costs, policy uncertainty, trade barriers, heavy capital needs, and intensifying competition in a commoditized market.

Catalysts

Provides solar energy and battery energy storage products and solutions in Asia, the Americas, Europe, and internationally.

• Canadian Solar is experiencing robust demand from the global acceleration of electrification (driven by booming data center, AI, and energy-intensive applications), which, combined with their expansion of energy storage solutions and solar module shipments, is likely to increase long-term revenue growth.
  
• The company's forward integration into battery storage, with plans to expand BESS manufacturing capacity from 10 GWh to 24 GWh by 2026 and battery cell capacity from 3 GWh to 9 GWh, positions Canadian Solar to capture higher-margin business and increase average order value, positively impacting future net margins and earnings.
  
• Global efforts to decrease the cost of renewable energy and deployments (through continued LCOE decline) and favorable policy environments (safe harboring under the U.S. tax credits, EU incentives) are set to support structurally high volumes and stable revenue streams over the next several years.
  
• Geographic diversification and a large, flexible development pipeline (27 GW solar, 80 GWh storage), including safe harbored projects in multiple global markets, provide resilience against regional policy/tariff shocks and ensure revenue visibility/growth, as delayed projects are not lost but shifted forward.
  
• Investments in advanced module and storage product innovation (such as the successful launch and certification of next-gen storage systems and segment-leading residential EP Cube) will support competitiveness and help mitigate margin compression, sustaining or growing future gross margins and earnings.

Canadian Solar Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Canadian Solar's revenue will grow by 10.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.1% today to 2.5% in 3 years time.
• Analysts expect earnings to reach $201.9 million (and earnings per share of $3.8) by about September 2028, up from $-6.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $388.0 million in earnings, and the most bearish expecting $25 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.8x on those 2028 earnings, up from -107.2x today. This future PE is lower than the current PE for the US Semiconductor industry at 33.5x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.5%, as per the Simply Wall St company report.

Canadian Solar Future Earnings Per Share Growth

Risks

• Canadian Solar faces rising supply chain and manufacturing costs (including increased tariffs, duties, and upstream material costs like polysilicon and wafers), but module price increases are expected to lag behind these cost hikes, creating long-term pressure on module profitability and net margins.
  
• There is ongoing policy uncertainty, particularly in the U.S., with the phase-out of the Investment Tax Credit (ITC) by the end of 2027, stricter FEOC requirements, and risks of evolving government guidance; these could impede U.S. project growth and reduce long-term revenue and earnings visibility.
  
• Intense competition and commoditization in the solar module market, coupled with Chinese industry overcapacity and price discipline challenges, could drive structural price declines and margin erosion over time, negatively impacting both topline growth and net margins.
  
• Heavy capital expenditure requirements for U.S. manufacturing expansion and advanced technology investments (amid asset write-downs like legacy PERC technology) could strain free cash flow and put pressure on the company's ability to deliver sustained earnings and reduce leverage.
  
• Ongoing trade barriers (such as tariffs, anti-dumping/countervailing duties, and possible import restrictions), along with potential U.S. Section 232 actions on polysilicon and exposure to global supply chain shocks, create revenue and margin risks, especially for a geographically diversified manufacturer like Canadian Solar.

Valuation

• The analysts have a consensus price target of $12.57 for Canadian Solar based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $21.0, and the most bearish reporting a price target of just $7.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.0 billion, earnings will come to $201.9 million, and it would be trading on a PE ratio of 5.8x, assuming you use a discount rate of 11.5%.
• Given the current share price of $11.04, the analyst price target of $12.57 is 12.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.