Canadian Solar Inc.’s (CSIQ) recent bullishness has been boosted due to the improving company fundamentals and a steep rise in the price of oil. Going forward, on the back of solar panel sales growth in various global markets, extension of product lines, material cost savings through the company’s more vertically-integrated production structure, higher captive generation of solar cells, long-term supply agreements and a silicon reclamation program should, collectively, generate significant earnings growth. However, the company’s requirement for funds to finance its expansion plans may put pressure on its profitability over the short-term.

Nevertheless, with a predominantly bullish outlook, we maintain our Buy recommendation on CSIQ with a six-month target price of $41.75. Price appreciation to our near-term valuation target represents 19.8% upside potential. A study by Solarbuzz reveals that worldwide installations of solar power systems are expected to grow at an annual rate of 17.4% up to 2010, led by on-grid shipments.

The company projects solar module sales to increase to 200-220MW in 2008. This is slated to rise with the introduction of e-Modules in Canadian Solar s product portfolio in the first quarter. The company projects 30-40MW of e-Modules sales in 2008. We expect revenue to continue to increase through 2009.

On July 15, Canadian Solar announced a 9MW sales agreement for its e-Modules with Conergy, USA. The contract runs till June 2009. On July 14, Canadian Solar announced that it expects net revenues for the second quarter to be in the range of $210-$214 million, compared to the forecasted range of $185-$190 million.

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