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How Does Trina Solar Compare to Its Peers on Valuation?

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Relative valuation

A company’s valuation helps us compare it to its peers. Specifically, the EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple represents the cost of a company’s common stock. A higher EV-to-EBITDA multiple implies that the company in question is overvalued compared to its peers.

The EV-to-EBITDA multiple isn’t impacted by a company’s capital structure. As the upstream solar industry is capital-intensive, companies in this industry raise capital through a variety of sources to fund their expansion plans. As a result, capital structure can vary significantly among them. Thus, the EV-to-EBITDA multiple is useful for comparing the value of one company to that of another.

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Among major upstream solar (TAN) companies, First Solar (FSLR) has the lowest estimated EV-to-EBITDA multiple of 3.9x for 2016. This is followed by Trina Solar’s (TSL) estimated multiple of 6.9x. Analysts expect that Canadian Solar’s (CSIQ) EV-to-EBITDA multiple will be 9.4x for 2016, compared to SunPower’s (SPWR) multiple of 10.5x.

Analyst’s ratings of Trina Solar

Notably, two out of 11 analysts covering Trina Solar have raised their target prices after its 2Q16 earnings. Out of 11 analysts covering TSL, two analysts rate the stock a “buy.” Eight analysts rate the stock a “hold,” and one analyst recommends a “sell” for the stock, as of August 24, 2016.

According to analysts’ estimates, the consensus 12-month target price for Trina Solar is $9.83, as of August 24. TSL closed at $10.52 on August 24.

Notable recommendations

Among the 11 firms covering Trina Solar’s stock, Morgan Stanley has rated the stock “equalweight,” with a target price of $11.60 assigned on August 3. However, Goldman Sachs (GS) and Credit Suisse maintain “neutral” ratings on the stock, with target prices of $9.0 and $11.60, respectively.

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