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Illumina's (ILMN) NovaSeq Adoption Aids, Margin Woe Stays

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Illumina, Inc.’s (ILMN - Free Report) market opportunities continue to expand owing to accelerated demand from clinical and translational customers. However, government budget cuts, including NIH funding issues, and competition act as major downsides.

In the past six months, Illumina has outperformed its industry. The stock has gained 22.9% against the industry's decline of 8%. Illumina exited the first quarter of 2021 with better-than-expected results. Gradually improving business conditions buoy optimism on the stock. Sequential improvement in segmental revenues across most geographies looks impressive as well. Strong microarrays revenues are also encouraging.

Additionally, robust adoption of NovaSeq 6000 v1.5 reagents to enhance deeper genomic discoveries is a positive. Receipt of the medical device registration in Russia for NextSeq 550Dx and its associated reagent kits are also praiseworthy. The announcement of TSO 500 partnership with Kartos Therapeutics to advance comprehensive genomic profiling (CGP) for blood cancers augurs well for the stock.

In the first quarter, Illumina derived benefits from the cascading effect of the ACOG guidance on increasing coverage of NIPT for all pregnancies. This led the company’s reproductive health business to register the third consecutive quarter of both year-over-year and sequential growth. Illumina, in partnership with Harvard Pilgrim Health Care, published favorable economic study results in March. This study demonstrated the cost-effectiveness of offering NIPT to pregnant women.


Internationally, the adoption of the CE-IVD-marked NIPT kit has been robust, reflecting increasing NIPT coverage.

Earlier the company noted that with multiple large payors expanding coverage for all pregnancies, the company expects NIPT coverage in the United States to exceed three million pregnancies by the end of 2021.

Solid long-term growth potential in the oncology space and worldwide expansion to drive growth also buoy optimism. A strong capital structure is an added plus.

On the flip side, pandemic-led lower sequencing revenues remain a concern. Contraction in both margins does not bode well either. Government budget cuts, including NIH funding issues, and competition are major downsides.

Zacks Rank and Key Picks

Illumina currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the broader medical space are Envista Holdings Corporation (NVST - Free Report) , Phibro Animal Health Corporation (PAHC - Free Report) and IDEXX Laboratories, Inc. (IDXX - Free Report) each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

Envista Holdings has an estimated long-term earnings growth rate of 26%.

Phibro Animal Health has an estimated long-term earnings growth rate of 11%.

IDEXX Laboratories has a projected long-term earnings growth rate of 20%.

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