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What's in the Cards for Illumina (ILMN) in Q3 Earnings?

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Illumina (ILMN - Free Report) is scheduled to report third-quarter 2022 results on Nov 3, after market close.

In the last reported quarter, the company’s adjusted earnings per share of 57 cents missed the Zacks Consensus Estimate by 9.5%. Earnings surpassed estimates in three of the trailing four quarters, and missed in one, the average beat being 20.10%.

Let’s take a look at how things have shaped up prior to this announcement.

Factors at Play

The ongoing inflationary pressure, a strengthening U.S. dollar and supply chain issues are expected to have adversely impacted Illumina’s third-quarter performance. Going by the industry-wide trend so far, logistical challenges and increasing unit costs might have weighed on the company's corporate profitability. The existing healthcare staffing challenges and diminishing demand for COVID-testing products might also have weighed on the company through the third quarter.

Meanwhile, the extended lockdown issues in limited geographies, including Greater China, where the company has extensive business, are expected to have adversely impacted the top line during the third quarter.

In this regard, we apprehend a reduction in COVID surveillance demand pulling back to have a negative impact on revenues in third-quarter 2022. In the second quarter, the significant decrease in mid-throughput shipments was primarily due to headwinds from COVID surveillance and COVID lockdowns in China, with NextSeq 1000, 2000 growth more than offset by a decrease in NextSeq 550.

Illumina, Inc. Price and EPS Surprise

Illumina, Inc. Price and EPS Surprise

Illumina, Inc. price-eps-surprise | Illumina, Inc. Quote

 

Over and above, the pending outcome of the European Commission's investigation into Illumina's acquisition of GRAIL, which was initiated in 2020, is putting enormous pressure on the company’s expenses. Other than the uncertainty surrounding GRAIL integration, these regulatory complications are raising legal expenses for Illumina, thereby building pressure on the bottom line. These are expected to have marred the company’s bottom line in the third quarter.

On a positive note, the ongoing substantial improvement in Core Illumina businesses and contributions from the GRAIL acquisition look encouraging so far. Illumina’s overall sequencing activity on connected instruments is expected to have been robust in the third quarter, on strong sequencing runs in its connected high- and mid-throughput instruments. NovaSeq consumable and instrument shipments in the quarter-to-be-reported are expected to have been promising. The continued strength in the company’s oncology markets is an added advantage contributing to its top line in the third quarter.

The company ended the second quarter with a strong backlog of $1.1 billion. A part of this might have been processed in the third quarter, contributing to the sales growth.

Q3 Estimates

The Zacks Consensus Estimate for the company’s third-quarter 2022 revenues is pegged at $1.10 billion, suggesting a 0.4% fall over the year-ago reported figure.

The Zacks Consensus Estimate for the company’s third-quarter 2022 earnings per share of 29 cents indicates an 80% slash from the year-ago reported figure.

What Our Model Suggests

Per our proven model, a stock with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP has a higher chance of beating estimates. However, this is not the case here, as you can see:

Earnings ESP: The company has an Earnings ESP of -0.88%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #5 (Strong Sell).

Stocks Worth a Look

Here are a few stocks worth considering, as these have the right combination of elements to beat on earnings this reporting cycle.

Chimerix (CMRX - Free Report) has an Earnings ESP of +33.81% and a Zacks Rank of #2. The company will release third-quarter 2022 results on Nov 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chimerix’s earnings yield of 112.3% compares favorably with the industry’s  negative 2.98%.

McKesson (MCK - Free Report) has an Earnings ESP of +0.27% and a Zacks Rank of #2. McKesson is scheduled to release third-quarter 2022 results on Nov 1.

McKesson’s long-term historical earnings growth rate is estimated at 14.2%. MCK’s earnings yield of 6.77% compares favorably with the industry’s 5.19%.

Humana (HUM - Free Report) currently has an Earnings ESP of +1.12% and a Zacks Rank of #2. Humana is slated to release third-quarter 2022 results on Nov 2.

Humana’s long-term historical earnings growth rate is estimated at 16.2%. HUM’s earnings yield of 5% is in line with the industry.

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