Analysts at UBS have upgraded their rating on Canadian Solar from ‘Neutral’ to ‘Buy’ on their belief that its stake in its majority-owned subsidiary CSI Solar A-Shares is unappreciated by the market.
“With the stock currently pricing in just 17% of the value of the A-Shares, we see upside potential driven by a narrowing of the valuation gap,” the analysts wrote in a note to clients.
The analysts added that they have updated their model to include UBS Asia Utilities analysts’ initiation of coverage on CSI Solar A Shares.
“The result is an increase in our 2023/24/25E adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) estimates to $1.024 billion/$1.370 billion/$1.519 billion from $967 million/$1.136 billion/$1,198 billion previously,” they wrote.
“The primary driver of the increase is growth in CSI Solar’s energy storage products business.”
The analysts also pointed to other key catalysts for Canadian Solar ahead, the first being the company’s second quarter 2023 earnings, which will include the 2023 CSI Solar carve-out listing. A second catalyst is the potential for CSIQ buybacks in the long term.
“While we continue to prefer more concentrated U.S. utility-scale renewables exposure, we believe CSIQ is positioned to benefit from Inflation Reduction Act (IRA) incentive through its Recurrent Energy development business and planned 5GW module assembly facility in Texas,” they wrote.
The UBS analysts also increased their price target on the manufacturer of crystalline silicon solar modules from US$48 to US$50.
Canadian Solar shares traded hands at US$37.26 on Thursday afternoon.
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