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First Solar FSLR- 2019 Top Picks' Mid-Year Update

David Coleman, an analyst for Argus Research, selected First Solar (FSLR) as his top investment idea for 2019. The stock has since risen 55%. Here's his latest update on this green energy idea.

We are maintaining our buy rating on First Solar Inc. (FSLR), a leading solar energy company; we view the firm as well positioned in the solar industry based on its positive cash flow and solid balance sheet. The stock rose 48% in the first half of 2019.

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We also like the company's focus on cadmium telluride technology, which should provide a cost advantage relative to more commoditized technologies like polysilicon.

In particular, FSLR's technological investments have enabled the company to lower the cost of solar generation on a per-watt basis and to improve its conversion efficiency. They have also helped the company to expand its opportunity set of utility-scale projects.

On May 2, the company reported 1Q19 net sales of $532 million, down from $567 million in 1Q19, reflecting lower systems project revenue in the U.S. and Japan. The company reported a 1Q GAAP loss of $0.64 per share, compared to earnings of $0.78 per share in 1Q18. We had expected a loss of $0.05 per share. For all of 2018, EPS came to $1.36, compared to a loss of $1.60 per share in 2017.

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Along with the 1Q results, management provided updated full-year 2019 guidance. Management projects net sales of $3.5-$3.7 billion, up from its previous guidance of $3.25-$3.45 billion.

The company expects earnings to be back-end-loaded this year, with a loss in 1Q and lower earnings in 2Q due to plant start-up costs. We are lowering our 2019 EPS estimate to $2.71 from $2.99 and maintaining our 2020 estimate of $3.31.

On valuation, FSLR trades at 22.1-times our 2019 EPS forecast, in the middle of the historical average range of 4.5-37.7 and below the peer average of 26.3. Investors should expect FSLR's financial results to be uneven on a quarter-to-quarter and year-to-year basis due to the timing of revenue recognition.

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