Illumina, Inc. (ILMN - Free Report) has been gaining from robust segmental growth and increased demand for its products. The company’s focus on partnerships and worldwide expansion to drive growth are expected to contribute further. However, stiff competition and a tough funding environment remain concerns.
Over the past three months, the Zacks Rank #3 (Hold) stock has outperformed its industry. The stock has gained 30.4% compared with the industry’s growth of 18.6%. Meanwhile, the S&P 500 rallied 14.4% in the same time frame.
The renowned life sciences company, which has a market capitalization of $52.93 billion, provides tools and integrated systems for analysis of genetic variation and function. The company projects 11% growth for the next five years and expects to maintain strong segmental performance. Further, it has a trailing four-quarter positive earnings surprise of 19.3%, on average.
Factors Favoring the Stock
Robust Demand for Products: We are upbeat about Illumina’s production scale, which got a major boost as it enhanced production to cater to customer demand during the pandemic. This included installation of iSeq and MiSeq systems at several Centers for Disease Control and Prevention since January, starting with one in the hardest pandemic-hit region.
Illumina also launched the SARS-CoV-2 Data Toolkit in April, which will make it easier to detect and identify the virus causing COVID-19. Further, the company received the FDA’s Emergency Use Authorization for its COVIDSeq Test in June, paving the way for large-scale next-generation (NGS) sequencing-based testing for coronavirus.
Strategic Partnerships: Illumina’s expansion strategy also buoys optimism. It partnered with IDbyDNA in March with the aim of co-marketing IDbyDNA’s Explify Platform for use with Illumina’s NGS systems and library preparation to provide a complete and streamlined workflow solution for infectious disease applications.
Further, the company’s tie up with QIAGEN N.V. (QGEN - Free Report) is aimed at expanding the accessibility and utilization of NGS-based IVD kits, including companion diagnostics, for better patient management. Illumina’s acquisition of BlueBee in June is expected to enhance its capabilities of analyzing and interpreting the data produced by its sequencing systems.
Strong Q1 Results: Illumina’s impressive first-quarter of 2020 results instills investor confidence in the stock. Strength in sequencing consumables, and sequencing services and other sub-segments drove year-over-year improvement in revenues.
Further, Illumina's NovaSeq pull-through per system witnessed year-over-year growth within the company’s expectations.
Stiff Competition: Illumina faces tough competition from several biggies already enjoying significant market share, intellectual property portfolios and favorable regulatory developments. Such companies include Agilent Technologies and Pacific Biosciences of California. To gain a competitive edge, Illumina must upgrade organization and infrastructure appropriately and develop products with superior throughput, cost, and accuracy.
Tough Funding Environment: Illumina’s exposure to the U.S. government funding was less than 30% in 2015. Budgetary pressures may result in reduced allocations to government agencies that fund research and development activities. Any shift from the funding of life sciences research and development or delays surrounding the approval of government budget proposals may cause Illumina's customers to delay or forego purchases of its products.
Illumina has been witnessing a negative estimate revision trend for 2020. Over the past 30 days, the Zacks Consensus Estimate for its earnings has moved south by 0.6% to $6.13.
The Zacks Consensus Estimate for second-quarter 2020 revenues is pegged at $682.8 million, suggesting a decline of 18.5% from the year-ago reported number.
Some better-ranked stocks from the broader medical space are Quest Diagnostics Incorporated (DGX - Free Report) , Hologic, Inc. (HOLX - Free Report) and QIAGEN.
Quest Diagnostics’ long-term earnings growth rate is projected at 7.6%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hologic’s long-term earnings growth rate is estimated at 7%. The company presently has a Zacks Rank #2 (Buy).
QIAGEN’s long-term earnings growth rate is estimated at 12.2%. It currently sports a Zacks Rank #1.
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