Canadian Solar (CSIQ) Earnings Expected to Rise: Is It Worth Buying?

Wall Street expects year-over-year earnings growth on lower revenues when Canadian Solar (CSIQ) reports earnings for the quarter ended September 2018. While this widely known consensus outlook is important in assessing the company’s earnings picture, it is a significant factor that could impact the short-term share price is to compare actual results with these estimates.

The earnings report, due on November 15, 2018, could help stocks climb higher if these key numbers are better than expected. On the other hand, if they miss, the stock could fall.

While the sustainability of the immediate price movement and future earnings expectations will largely depend on management’s discussion of business conditions during the earnings call, it is worth limiting the likelihood of a positive EPS surprise.

Zacks Consensus Estimate

This solar wafer maker is expected to post quarterly earnings per share of $0.46 in its upcoming report, representing a year-over-year change of +109.1%.

Revenue is expected to be $806.13 million, down 11.6% from the year-ago quarter.

Estimate the trend of change

The consensus EPS estimate for the quarter has not changed over the last 30 days. This broadly reflects how analysts covering the data have collectively re-evaluated their initial estimates during this period.

Investors should note that the aggregate change does not necessarily reflect the direction of estimate revisions by each major analyst.

Price, consensus and EPS surprise

Whisper about earnings

Revisions to estimates prior to a company’s earnings release provide an indication of business conditions in the period in which the earnings are expected to be released. Our proprietary surprise prediction model, the Zacks Earnings ESP, is based on this insight.

The Zacks Earnings ESP compares the Most Accurate Estimates to the Zacks Consensus Estimates for the quarter; The most accurate estimate is the Zacks Consensus estimate, which is subject to change. The idea is that analysts reviewing their estimates just before an earnings release have the latest information that could potentially be more accurate than what they and other consensus participants had previously predicted.

Thus, a positive or negative ESP reading theoretically indicates the likely deviation of actual earnings from consensus estimates. However, the predictive power of the model is only significant for positive ESP readings.

A positive Earnings ESP is a strong predictor of an earnings beat, especially when paired with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks in this combination deliver a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of its Earnings ESP.

Please note that a negative earnings ESP reading does not mean a loss of earnings. Our research shows that it is difficult to predict earnings growth with any degree of confidence for stocks with negative ESP readings and/or a Zacks Rank of 4 (Sell) or 5 (Strong Sell).

How have the numbers changed for Canadian Solar?

For Canadian Solar, the Most Accurate Estimate is in line with the Zacks Consensus Estimate, which suggests there is no recent analyst view that differs from what was used as the basis for the consensus estimate. This resulted in an earnings ESP of 0%.

On the other hand, the stock currently has a Zacks Rank of #3.

So this combination makes it difficult to firmly predict that Canadian Solar will beat the consensus EPS estimate.

Does the history of surprising results have any clue?

When calculating future earnings estimates, analysts often consider how well a company has been able to match consensus estimates in the past. So it’s worth taking a look at the surprise history to gauge its impact on the upcoming issue.

For the last reported quarter, Canadian Solar was expected to post earnings of $0.33 per share when it actually produced earnings of $0.26, delivering a surprise of -21.21%.

The company has beaten consensus EPS estimates twice over the last four quarters.

Bottom line

Improving or lacking earnings may not be the only basis for a stock’s value rising or falling. Many stocks lose value despite good earnings because of other factors that disappoint investors. Similarly, unforeseen catalysts help many stocks gain despite losing profits.

That said, betting on stocks that are expected to exceed earnings expectations increases your chances of success. Therefore, it is worth checking the company’s Earnings Rank and Zacks Rank before their quarterly release. Use our Earnings ESP filter to find the best stocks to buy or sell before they report.

Canadian Solar doesn’t seem like a compelling earnings beat candidate. However, investors should also pay attention to other factors if they want to bet on or stay away from these stocks ahead of an earnings release.

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