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Illumina (ILMN) Rides on New Products, Low Margin a Concern

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On Aug 3, 2017, we issued an updated research report on San Diego, CA-based Illumina Inc. (ILMN - Free Report) , a company providing tools and integrated systems for the analysis of genetic variation and function.

Illumina exited the second quarter on a solid note, with both earnings and revenues beating the Zacks Consensus Estimate. The top line was strong with new product launches including the VeriSeq NIPT Solution in Europe and the strength of NovaSeq. More good news is that the rate of NIPT adoption is increasing outside the U.S.

Notably, over the last three months, Illumina has been trading above the broader industry. The stock has grown 4.8% in this period compared with a 3.9% gain of the broader industry. The company’s raised guidance is also encouraging enough to indicate that this bullish trend will continue in the coming period.

Also, demand for NovaSeq surpassed the company’s expectations with orders beating forecast over 30%. More than 230 NovaSeq instruments have been ordered since its launch in January. We are also looking forward to GRAIL, Illumina’s own-developed company, focused on the cancer screening market.

Within clinical markets, demand from customers undergoing oncology testing remains robust. We are currently looking forward to the performance of the Extended RAS Panel, slated for launch in the third quarter. Significantly in June, the company announced an FDA approval receipt for the Extended RAS companion diagnostic kit (as the Class III PMA).

On the flip side, weak margins owing to NovaSeq’s launch, higher array services revenues and product mix within sequencing consumables will continue to act as deterrents. Also, National Institutes of Health (NIH) funding issue and a tough competitive landscape are other few concerns to deal with.

Zacks Rank & Key Picks

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

Some of the better-ranked medical stocks are Edwards Lifesciences Corporation (EW - Free Report) , INSYS Therapeutics, Inc. (INSY - Free Report) and Align Technology, Inc. (ALGN - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. The stock has gained around 4.7% over the last three months.

INSYS Therapeutics has expected long-term earnings growth rate of 20%. The stock has gained around 4.7% over the last three months.

Align Technology has expected long-term adjusted earnings growth of almost 24.1%. The stock has surged roughly 24.7% over the last three months.

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