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Here's Why Investors Should Retain Illumina (ILMN) Stock Now

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Illumina, Inc. (ILMN - Free Report) has been gaining from strength across its operating segments. The company recorded better-than-expected results in the first quarter of 2022. Robust demand for GRAIL’s Galleri test instills optimism. However, mounting expenses and stiff competition raise apprehension.

In the past year, the Zacks Rank #3 (Hold) stock has lost 36.4% against a 37% decline of the industry and a 1.9% drop of the S&P 500.

The renowned life sciences company has a market capitalization of $40.54 billion. Its adjusted earnings per share for the first quarter beat the Zacks Consensus Estimate by 22.9%.

The company’s long-term expected growth rate of 31.2% exceeds the industry’s long-term growth expectation of 19.1% and the S&P 500’s estimated 10.7% growth.

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Image Source: Zacks Investment Research

Let’s delve deeper.

Factors At Play

Q1 Upsides: llumina exited the first quarter with better-than-expected earnings and revenues. The robust year-over-year improvement in Core Illumina businesses looks encouraging. Revenue contributions from the newly-formed GRAIL business, primarily from Galleri test fees, seem promising. NovaSeq consumable and instrument shipments reached new highs during the quarter as the company witnessed robust demand for NextSeq 1000, 2000 from new customers. The company also saw significant growth in the installed base and a record backlog, instilling optimism.

Reproductive and Genetic Health Market Prospect High: Illumina is progressing well with goals to strengthen its foothold in the multi-billion gene sequencing worldwide market. Within reproductive health, the company saw continued expansion of coverage, reimbursement and evidence generation in the first quarter, particularly in Europe. Countries like Spain and Italy have expanded coverage for non-invasive prenatal tests, with Germany set to follow suit later this year.

In genetic disease testing, Illumina registered robust first-quarter performance, as it enabled expanding coverage and utilization of whole-genome sequencing (WGS) globally. In April 2022, the company announced an agreement with Germany's Hannover Medical School to implement the use of WGS for critically ill children suspected of having a genetic or rare disease.

GRAIL Business Gaining Traction: Illumina’s acquired healthcare company GRAIL delivered $10 million in revenues during the first quarter. GRAIL's groundbreaking multi-cancer early detection blood test, Galleri, continued to exhibit increasing growth momentum. In its first-quarter earnings call, the company noted that the Galleri has been prescribed by more than 2,400 prescribing physicians to date.

Added to this, GRAIL has entered into 34 partnerships with health systems, employers and insurers who are investing in multi-cancer early detection to improve outcomes. In May 2022, GRAIL expanded the partnership with Intermountain Healthcare to provide Galleri to eligible patients in Utah. Other noteworthy collaborations include the ones with Munich Re Life US and Point32Health.

Downsides

Sales Scenario Dull: During the first quarter, Illumina’s revenue growth across the EMEA region was modestly impacted by lower shipments to Russia due to the ongoing war in Ukraine. Whereas, revenues from Greater China were flat year-over-year as the region's robust clinical demand in hospitals was offset by COVID-19 restrictions since March.

Rising Costs: Illumina’s research and development expenses increased 63.9% year over year, which pushed up operating costs by 10.5% in the first quarter. These escalating costs are building significant pressure on the bottom line.

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

Estimate Trend

Over the past 90 days, the Zacks Consensus Estimate for Illumina’s 2022 earnings has moved down by 0.9% to $4.10.

The Zacks Consensus Estimate for its 2022 revenues is pegged at $5.20 billion, suggesting a 14.9% rise from the year-ago reported number.

Key Picks

A few better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Masimo Corporation (MASI - Free Report) .

AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, 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.

AMN Healthcare has outperformed its industry in the past year. AMN has gained 7.8% against the industry’s 63.1% fall.

Medpace has a historical growth rate of 27.3%. Medpace’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%. It currently has a Zacks Rank #2 (Buy).

Medpace has outperformed its industry in the past year. MEDP has declined 11.8% compared with the industry’s 63.1% fall.

Masimo has a historical growth rate of 15.1%. Masimo’s earnings beat estimates in each of the trailing four quarters, the average surprise being 4.4%. The company currently carries a Zacks Rank #2.

Masimo has underperformed the industry in the past year. MASI has declined 33.4% compared with a 14.8% fall of the industry.