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Illumina (ILMN) Up 7% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Illumina (ILMN - Free Report) . Shares have added about 7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Illumina due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Impressive Overall Growth Drives Illumina's Earnings in Q3

Illumina reported adjusted earnings per share (EPS) of $1.52 in the third quarter of 2018, beating the Zacks Consensus Estimate of $1.25 by 21.6%. Also, the bottom line improved from the year-ago number by 36.9%.

Including one-time items, the company reported EPS of $1.33 compared with $1.11 a year ago.

Revenues

In the quarter under review, Illumina's revenues rose 19.5% year over year to $853 million. The top line surpassed the Zacks Consensus Estimate by 3.4% on strong consumables growth across Illumina’s sequencing portfolio with strength in all throughput categories and strong microarray business.

Moreover, the NovaSeq platform continued to show strong momentum on strong performance by the S1, S2 and S4 flow cells. Riding on NovaSeq platform’s strength, the company recorded sequencing system revenues of $138 million — the strongest since 2015.

Product revenues (83.2% of total revenues) increased 19.1% year over year to $710 million, and Service and Other (16.8%) revenues were up 21.2% year over year to $143 million.

Operational Update

Adjusted gross margin (excluding amortization of acquired intangible assets) came in at 71.2%, reflecting an expansion of 240 basis points (bps) year over year owing to a favorable product mix within sequencing consumables.

Research and development expenses rose 18.7% year over year to $159 million, and selling, general & administrative expenses increased 18% to $197 million. The adjusted operating margin of 29.4% expanded 280 bps from a year ago.

Financial Update

Illumina exited the third quarter with cash and cash equivalents plus short-term investments of $3.39 billion, up 35.1% from $2.51 billion at the end of second-quarter 2018. For the first nine months of 2018, net cash provided by operating activities as of Sep 30, 2018, was $842 million compared with $581 million as of Oct 1, 2017.

2018 Guidance Updated

Illumina has maintained its full-year revenue growth expectation at around 20%. Meanwhile, the Zacks Consensus Estimate for the metric is pegged at $3.31 billion.

Adjusting for certain net specified items for the full year, EPS is now expected in the band of $5.70-$5.75, showing a rise from the earlier forecast of $5.35-$5.45. The consensus mark for the earnings is at $5.46, below the projected range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Illumina has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Illumina has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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