NEW YORK (TheStreet) -- Shares of Canadian Solar (CSIQ) - Get Report rose 8.32% to $30.84 in morning trading Tuesday after peer companies First Solar (FSLR) - Get Report and SunPower (SPWR) - Get Report announced late Monday that they are in talks to form a joint entity known as a "yieldco."
A yieldco provides power under the terms of long-term contracts and pays out significant portions of its cash flow to shareholders.
The formation of a yieldco, which the two companies plan to spin off via an IPO in the future, could indicate the health of the solar energy industry, which has suffered in recent months as oil and natural gas prices have plunged. Multiple solar energy stocks, including Canadian Solar, moved higher on Tuesday in the wake of the announcement.
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First Solar and SunPower had separately made statements in the past about potentially forming yieldcos. First Solar CEO Jim Hughes said in November that the company was not ready to "pursue a listed yield vehicle" at that time.
Separately, TheStreet Ratings team rates CANADIAN SOLAR INC as a "hold" with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate CANADIAN SOLAR INC (CSIQ) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, poor profit margins and a generally disappointing performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- CSIQ's very impressive revenue growth greatly exceeded the industry average of 10.1%. Since the same quarter one year prior, revenues leaped by 86.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- CANADIAN SOLAR INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, CANADIAN SOLAR INC turned its bottom line around by earning $0.56 versus -$4.52 in the prior year. This year, the market expects an improvement in earnings ($4.11 versus $0.56).
- The gross profit margin for CANADIAN SOLAR INC is rather low; currently it is at 22.89%. Regardless of CSIQ's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, CSIQ's net profit margin of 11.39% is significantly lower than the industry average.
- Currently the debt-to-equity ratio of 1.56 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. To add to this, CSIQ has a quick ratio of 0.67, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full analysis from the report here: CSIQ Ratings Report