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Bear of the Day: Illumina (ILMN)

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Illumina (ILMN - Free Report) is the maker of the premier technology platform for genomic sequencing. While their million-dollar NGS (next-generation sequencing) machines are always in demand from biotech companies, universities, and other genetic researchers, the past year of the pandemic put a noticeable dent in sales and profits.

Which is a bit ironic since rapidly sequencing the genome of the coronavirus has been the key to developing vaccines in such a short time.

After a projected 33% drop in EPS for 2020 from $6.57 to $4.39, profits for ILMN are expected to bounce back to $5.82 in 2021.

But recently, an analyst from Piper Sandler slashed EPS estimates for the first half of the year, cutting Q1 to $1.10 from $1.53 and dropping Q2 even more from $1.75 to $1.20.

These downward estimate revisions were inspired by the company's revelations at the JPMorgan Healthcare Conference on January 11 where Illumina guided FY21 adjusted EPS to $5.10-$5.35, vs. the prevailing consensus of over $6.50.

Illumina also guided revenues lower for the year, offering a view of $3.79 to $3.88 billion, vs. consensus of over $3.95B.

So what should investors make of the stock recovering to all-time highs above $405?

One persistent driver for shares is urgent demand for its proprietary technology. Here's how the company describes its current focus and mission...

In these unprecedented times, there are no borders, countries, mine, or yours. There’s only one focus: how do we stop COVID-19. As the world’s leader in next-generation sequencing, our technology helps power the heroes working around the clock to track transmission, conduct surveillance, develop therapies and vaccines, and protect our neighbors around the globe for years to come.

At the JPM shindig, Illumina also announced its latest innovation, Illumina Connected Analytics for "transforming genomic data bottlenecks into catalysts."

"This new and integrated bioinformatics solution provides a comprehensive, private, cloud-based data platform that empowers customers to manage, analyze, and explore large volumes of multi-genomic data in a secure, scalable, and flexible environment," was how the company described this new offering.

Connected Analytics will be available on January 28, and that may explain some of the recent push to new highs.

Another newer driver is the discovery of the world's greatest ETF innovator, Cathie Wood of ARK Invest.

Aside from the glaring fact that she sold all ILMN shares in Q4 of 2020, the surging interest in her ARK Genomics ETF (ARKG - Free Report) and ARK Innovation ETF (ARKK - Free Report) have helped send biotechnology stocks to all-time highs, from the CRISPR wing members like Editas Medicine (EDIT - Free Report) to the smaller NGS players like Invitae (NVTA - Free Report) .

I also sold ILMN shares in Q4, even before I knew that ARK Invest did. We took 20% gains near $350 even as Wall Street analysts were lowering their estimates and price targets down below $300.

Now we all have egg on our portfolios as Illumina soars to new highs.

If you still hold ILMN shares, you may consider holding or trimming as lots of optimism about the recovery is already baked in. And I would wait for the estimates to stop going down, and start going back up, before adding new shares. The Zacks Rank will let you know.

Disclosure: I own shares of EDIT for the Zacks Healthcare Innovators portfolio.

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