A leading provider of sequencing and array-based solutions for genetic analysis, Illumina, Inc. (ILMN) has gained 20.6% over the past six years. It hit an all-time high of $555.77 on February 12, 2021, driven by favorable financial results announced on February 11.
However, the stock plunged thereafter, and is currently trading 28.4% below its high, because the Federal Trade Commission (FTC) said that it would challenge the company's proposed takeover of liquid biopsy company Grail. The FTC believes the acquisition would diminish innovation in the United States in multi-cancer early detection tests.
In response, ILMN issued a notice on March 30 stating that it will oppose FTC’s decision and pursue its right to proceed with the transaction. Furthermore, the company has several strategic alliances and also enjoys long-term standing relationships with clients. So, we think it could be wise to invest in the stock now.
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Here are the factors that we think could influence ILMN’s performance in the upcoming months:
Improving Financials
ILMN delivered a strong finish to fiscal 2020, reporting record fourth quarter (ended January 3, 2021) revenue of $953 million, which represents 20% growth sequentially. The performance was driven by record orders in the fourth quarter, including record sequencing instrument orders and the second highest quarter for NovaSeq instrument orders.
The company’s gross profit also increased 9.8% sequentially to $630 million for the quarter, and its net income came in at $257 million, up 7.5% year-over-year. Its non-GAAP EPS increased 19.6% sequentially to $1.22. It also surpassed the Street’s EPS estimates in three of the trailing four quarters.
Strategic Collaborations
In January, ILMN collaborated with Sequoia Capital China to accelerate the startup ecosystem in China with the launch of the Sequoia Capital China Intelligent Healthcare Genomics Incubator, powered by ILMN. And, at the 39th Annual J.P. Morgan Healthcare Conference in San Francisco, ILMN’s CEO Francis deSouza announced a series of oncology partnerships that aim to expand the reach of its powerhouse comprehensive genomic profiling family of products, TruSight Oncology.
Also in January, ILMN and Helix collaborated to augment national surveillance infrastructure in the U.S. to track the emergence and prevalence of novel strains of SARS-CoV-2, with support from the Centers for Disease Control and Prevention (CDC).
Favorable Analyst Estimates
Analysts expect ILMN’s EPS to come in at $1.25 for the quarter ending June 30, 2021, which represents a 101.6% increase year-over-year. Its EPS is also expected to grow 22.4% in fiscal 2021, 25.6% in fiscal 2022 and at a rate of 21.5% per annum over the next five years. The company’s revenue is expected to increase 23.4% in fiscal 2021 and 15.2% in fiscal 2022.
POWR Ratings Show Promise
ILMN has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assesses stocks by 118 different factors, each with its own weighting.
Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, ILMN has an A grade for Quality. This is justified given that its trailing-12-month gross profit margin is 68.9%, which is higher than the industry average 55.3%. Its trailing-12-month levered cash flow margin of 21.4% is also significantly higher than the industry average of 2.1%.
In addition to the POWR Ratings grades we’ve just highlighted, we've given ILMN grades for Momentum, Stability, Sentiment, Growth, and Value. Get all ILMN ratings here.
ILMN is ranked #25 of 493 stocks in the Biotech industry.
If you’re looking for other top-rated stocks in the Biotech industry, with an Overall POWR Rating of A or B, you can access them here.
Bottom Line
ILMN’s shares dipped following the FTC’s obstruction to its acquisition of Grail, but the company is pursuing its right to acquire Grail. Furthermore, ILMN is expected to grow significantly given increasing demand for its instruments and consumables used in genetic analysis, genotyping and sequencing services. It also raised its fiscal 2021 first quarter revenue guidance on a broad-based acceleration across its core clinical and research applications. So, we think it is wise to bet on it now.
Click here to checkout our Healthcare Sector Report for 2021
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ILMN shares were trading at $401.93 per share on Thursday afternoon, up $3.86 (+0.97%). Year-to-date, ILMN has gained 8.63%, versus a 11.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.
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