Auriga is out upgrading Canadian Solar (CSIQ) this morning to Buy from Hold, but lowered the price target from $25 to $21.  The firm believes that CSIQ’s pre-announcement in which it announced a Forex hit as well as lower margins, has been priced in for the most part ahead of earnings (no official date announced yet).

Says the firm: “The gross margin decline was worse than expected, and when combined with the charge to Other Income for inadequately hedging exposure to the Euro, we believe management has set a low enough bar for Q1 earnings. Our new price target is 13x our 2011 EPS of $1.58.”

Other highlights in Auriga’s call:

For the stock to outperform, management needs to up guidance on the conference call above 700MW which is the high end of previous guidance.

Auriga lowers gross margins assumptions to 13.6% for 2010 and 14.1% for next year

Reduces Q1 estimate to a loss of .08/share due to $20 million forex hit, lower margins

No change in shipment forecast of 190MW for Q1 or 675MW for full year.

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Shares of CSIQ are well off the morning lows of $16/share, but I still feel like it needs to test the $15 level before a meaningful recovery can take place.