These two companies are involved in a patent infringement lawsuit but which is the better investment today, Maxeon or Canadian Solar?
As with all green initiatives, solar energy and tech is being further bolstered by policies enacted by European governments and the current U.S. administration. Like all tech companies, solar firms very vehemently defend their intellectual property, in this case, for building a more efficient solar panel.
In September of last year, Maxeon (NASDAQ: MAXN) filed a lawsuit against Canadian Solar (NASDAQ: CSIQ) for patent infringement on its shingled solar cell panel tech for deploying solar panels. On top of controversy, the companies are experiencing fluctuating material costs and low margins typical for the industry, but both have some sunshine in their future. So which is the better investment, Maxeon or Canadian Solar?
Maxeon’s bull and bear case:
Maxeon recently signed a deal to supply 1 gigawatt (GW) of bifacial panels for the Gemini solar plus storage power project. Due to be completed by 2023, it will be one of the largest operational solar power systems in the U.S. The company is also excluded from the Section 201 tariffs imposed in 2018 that will continue until 2022; this helps it charge more for its panels and boost its margins. Speaking of margins, Maxeon is on schedule to reach its manufacturing cost target for its Maxeon 5/6 product line and is on track to average $0.20/watt gross profit.
Later this year, the company will be releasing its Maxeon Air range of panels which will open up a whole new market of low-load bearing roofs as the panels are flexible, frameless, and can be applied with peel-and-stick tech. The European market alone is estimated to be over 4GW. Additionally, the company’s inherited polysilicon fixed-price contract write-offs are due to be completed early next year. These developments are expected to put Maxeon on a path to a $4.00 adjusted annual EPS by 2022.
On the bear side, Maxeon’s latest quarterly results (Q1 2021) are dismal, to say the least with not only falling financial metrics across the board. Its revenue projections for the next quarter fall short of consensus estimates by roughly $40 million. As the company tries to gain market share, more financially stable competitors, like LG Solar and Panasonic are offering lower-priced panels.
Canadian Solar’s bull and bear case:
Canadian Solar doesn’t only concentrate on manufacturing and selling panels but also retains partial ownership of solar projects for steady recurring cash flows. Additionally, the company is an early mover in the energy storage market to make grid management a more stable endeavor. The company will list on the Chinese stock exchange later this year and will use that capital for capacity growth and more vertical integration.
Canadian Solar isn’t short on business as it currently has 1 gigawatt-peak (GWp) in operation, 3.7 GWp in backlog, and 12 GWp in its pipeline. Further, on the storage front, the company has over 2,800 megawatt-hours of storage projects in its pipeline. For its outlook to 2025, Canadian Solar expects sales revenue to go up 221%, services income to grow 400%, and proceeds from partial ownerships of projects to surge over 700%. It’s little wonder that the company has over 23% insider ownership and nearly 70% institutional.
Canadian Solar releases its cash flow statement annually and for 2020 its cash from operations and free cash flow are down 120% and 250%, respectively. Another point against the company is the contracted margins it operates under as it barely makes money even though it performs well above its own expectations.
So, which is the better buy?
Canadian Solar is the clear winner as it is expanding its business to encompass ownership of solar projects and is embracing the energy storage market. Maxeon is strong on the innovation front, owning over 900 patents but its business model isn’t aggressive enough for the sector.
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