Illumina, Inc. (ILMN Quick QuoteILMN - Free Report) has been gaining from robust international performance. The company’s notable partnerships in the oncology space appear strategic. The continued adoption of GRAIL’s Galleri test buoys optimism. Yet, escalating costs and tough competition do not bode well.

Over the past year, the Zacks Rank #3 (Hold) stock has lost 15.1% versus the 33.2% decline of the industry and the 5.2% rise of the S&P 500.

The renowned life sciences company has a market capitalization of $53.74 billion.

Over the past five years, the company’s earnings have registered 10.6% growth, compared with the industry’s 18.7% rise and the S&P 500’s 13.4% increase. The company’s long-term expected growth rate of 31.2% exceeds the industry’s long-term growth expectation of 19.3% and the S&P 500’s estimated 11% growth.

Image Source: Zacks Investment Research

Let’s delve deeper.

Factors At Play

Partnerships Strengthen Business: We are optimistic about Illumina’s expansion strategy to enhance its portfolio of sequencing products through new purchases and strategic partnerships with therapeutics and diagnostic services providers. In January 2022, the company entered into a multi-year partnership with Agendia to co-develop in vitro diagnostic tests for oncology testing. In the same month, the company partnered with Boehringer Ingelheim to develop companion diagnostics for several programs in the latter’s oncology pipeline.

Worldwide Expansion Drives Growth: Illumina’s EMEA revenues improved 23% year over year in the fourth quarter, driven by strength in emerging markets, population genomics initiatives and COVID-19 surveillance testing. Revenues from Greater China (including China, Taiwan and Hong Kong) rose 26% year over year on continued clinical strength in the region. Meanwhile, revenues from APJ (the Asia Pacific and Japan) grew 34% year over year, driven by record NovaSeq placements and continued momentum in clinical markets.

GRAIL Business Gaining Traction: Illumina’s acquired healthcare company GRAIL continues to see strong momentum in oncology. In 2021, GRAIL introduced Galleri-- the first clinically validated, multi-cancer early-detection test available to patients and providers, which can detect more than 50 types of cancer. The Galleri test is being adopted by several large employers and payers with more than 1,500 prescribing partners, including participation from prominent health systems like the NHS, the Mayo Clinic and the Cleveland Clinic.

Of late, GRAIL has also been engaged in a slew of strategic collaborations, instilling optimism. In February 2022, GRAIL entered into an agreement with Point32Health to partner on a two-phased pilot of Galleri multi-cancer early detection blood test. Other notable partnerships by the business include the ones with Premier’s PINC AI and Alignment Health Plan.

Downsides

Rising Costs: During the fourth quarter, Illumina’s research and development expenses increased 75%, whereas selling, general & administrative expenses rose a stupendous 42.9% year over year. These mounting expenses pushed up operating costs, leading to huge operating losses in the quarter.

Stiff Competition: Illumina faces significant competition in the sequencing, SNP genotyping, gene expression and molecular diagnostics markets. To compete effectively, the company must upgrade its organization and infrastructure appropriately and develop products with superior throughput, cost, and accuracy.

Tough Funding Environment: The timing and amount of Illumina’s revenues from customers that rely on government and academic research funding may vary significantly due to factors that can be difficult to forecast. While funding for life science research can be volatile during periods of economic uncertainty, government funding of research and development is subject to the political process.

Estimate Trend

Over the past 90 days, the Zacks Consensus Estimate for Illumina’s 2022 earnings has moved north by 0.7% to $4.14.

The Zacks Consensus Estimate for its 2022 revenues is pegged at $5.23 billion, suggesting a 15.5% rise from the year-ago reported number.

Key Picks

A few better-ranked stocks in the broader medical space are Owens & Minor, Inc. (OMI Quick QuoteOMI - Free Report) , AMN Healthcare Services, Inc. (AMN Quick QuoteAMN - Free Report) and Abiomed, Inc. .

Owens & Minor has a long-term earnings growth rate of 8.8%. Owens & Minor’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 29.5%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Owens & Minor has outperformed the industry over the past year. OMI has gained 18.2% against a 18.4% industry decline in the said period.

AMN Healthcare has an estimated long-term growth rate of 16.2%. AMN Healthcare’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 20%. It currently carries a Zacks Rank #1.

AMN Healthcare has outperformed the industry over the past year. AMN Healthcare has gained 43.8% against the industry’s 57.4% fall over the past year.

Abiomed has an estimated long-term growth rate of 20%. Abiomed’s earnings surpassed estimates in the trailing four quarters, the average surprise being 9.2%. It currently carries a Zacks Rank #2.

Abiomed has outperformed the industry over the past year. ABMD has lost 2% compared with the industry’s 3.9% fall over the past year.