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Here's Why You Should Hold on to Illumina (ILMN) for Now

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Illumina, Inc. (ILMN - Free Report) is well poised for growth in the coming quarters owing to greater market adoption of its NextSeq 1000 and 2000 platforms. The company’s notable partnerships instill optimism. Further, growth prospects in the multi-billion gene sequencing worldwide market look encouraging as well. However, delay in the acquisition of the GRAIL raises concerns. Stiff competition and escalating costs are other headwinds.

Over the past year, the Zacks Rank #3 (Hold) stock has gained 20.2% against the 8.3% decline of the industry and the 29.7% rise of the S&P 500.

The renowned life sciences company, which provides tools and integrated systems for analyzing genetic variation and function, has a market capitalization of $59.45 billion. Its second-quarter 2021 earnings per share surpassed the Zacks Consensus Estimate by 37.5%.

Over the past five years, the company’s earnings grew 7.5%, compared to the industry’s 14.4% rise and the S&P 500’s 2.8% increase. The company’s long-term expected growth rate of 31.6% exceeds the industry’s long-term growth expectation of 19% and the S&P 500’s estimated 11.4% growth.

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Let’s delve deeper.

Factors At Play

Reproductive and Genetic Health Market Prospects High: Illumina is currently keeping well with its goals to strengthen its foothold in the multi-billion gene sequencing global market with some highly competitive products in its existing portfolio and pipeline. In the second quarter, the company noted that it has been making progress outside the United States to ensure that all expecting families have access to non-invasive prenatal tests (NIPT). Additionally, the company is seeing continued growth from the CE-IVD marked VeriSeq NIPT solution in Europe and Asia.

Greater Market Adoption: The continued market adoption of Illumina’s NextSeq 1000 and 2000 platforms, and the NextSeq 550 system, raises optimism. The NextSeq Dx reported its highest shipment in the second quarter as the company witnessed a trend toward decentralization of clinical sequencing outside the United States. The company continued to experience strong customer demand for NovaSeq units. The NovaSeq shipments registered more than double growth in the second quarter of 2021 compared to the year-ago period.

Partnerships Strengthen Business: We are upbeat about Illumina’s strategic partnerships with therapeutic and diagnostic service providers. During the second-quarter earnings update, Illumina confirmed the establishment of a global pathogen genomics initiative in collaboration with the Bill & Melinda Gates Foundation. This collaboration is expected to help make the NGS technology and expertise accessible in areas of need. In April, the company entered into a partnership with Kartos Therapeutics to co-develop a TP53 CDx based on the content of Illumina’s CGP assay, TSO 500. Further, in March, the company and its strategic partner R-Pharm received medical device registration in Russia for Illumina NextSeq 550Dx platform and associated reagent kits.

Downsides

Escalating Costs: Illumina registered a significant rise in operating costs in second-quarter 2021. Research and development expenses rose 30.3% year over year in the reported quarter. Meanwhile, selling, general and administrative expenses climbed 133.3%.

GRAIL Acquisition Process Getting Tedious: At present, Illumina’s impending $7.1-billion acquisition of GRAIL is faced with regulatory complications. In April, the company filed an action in the General Court of the European Union asking to annul the European Commission’s decision asserting jurisdiction to review the acquisition mentioned above. In addition, in March, the FTC (Federal Trade Commission) filed an admission complaint along with a federal court lawsuit to block the proposed acquisition of GRAIL. Apart from delaying the acquisition process, these regulatory complications are also incurring legal expenses for Illumina, thereby building pressure on the company’s bottom line.

Tough Competition: Illumina faces stiff competition in the sequencing, SNP genotyping, gene expression and molecular diagnostics markets from notable players like Agilent Technologies, Inc. (A - Free Report) . To compete effectively, the company must appropriately upgrade its organization and infrastructure and develop products with superior throughput, cost, and accuracy.

Estimate Trend

Illumina has been witnessing a positive estimate revision trend for 2021. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved north by 11.7% to $6.48.

The Zacks Consensus Estimate for its third-quarter 2021 revenues is pegged at $1.04 billion, suggesting a 30.9% rise from the year-ago reported number.

Key Picks

A few better-ranked stocks from the Medical- Biomedical and Genetics industry include  Horizon Therapeutics Public Limited Company (HZNP - Free Report) and Vertex Pharmaceuticals Incorporated (VRTX - Free Report) , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Horizon Therapeutics has a long-term earnings growth rate of 16.3%.

Vertex Pharmaceuticals has a long-term earnings growth rate of 9.8%.