Morningstar | Illumina Reports Another Impressive Quarter With Few Roadblocks on the Horizon. See Updated Analyst Note from 24 Oct 2018
We're raising our fair value estimate for Illumina to $260 per share from $205. The company’s performance on the top and bottom lines has surpassed our expectations the last two quarters, and we’re increasing our five-year annualized growth forecast to almost 15%. Although we still think shares look expensive, we admit the company’s growth momentum and market opportunities remain attractive. llumina has a 5% tariff on its instruments sold in China and customers in the country prepurchased nearly $14 million in consumables during the quarter leading to a potential slight slowdown in the fourth quarter performance, but we see few roadblocks for narrow-moat Illumina and its leadership in the genome sequencing market. Management maintained its 20% revenue growth outlook for the year, but raised adjusted EPS to $5.70-$5.75.Illumina posted another strong quarter led by 7.8% and 22.9% growth in sequencing instruments and consumables, respectively. Additionally, a mix shift helped push adjusted operating margin up nearly 100 basis points to 29.4%. NovaSeq placements should uphold growth in 2019, but management continues to note broad uptake across all customer categories, including nearly 50% of lower-throughput MiSeq and new-to-sequencing MiniSeq customers. Besides the ongoing uptake of Illumina's instruments for population sequencing studies, we anticipate healthy demand for sequencing technology in the clinical market will persist thanks to improving insurance coverage of average risk prenatal tests, liquid biopsy, oncology panels, and rare genetic disorders for newborn children. Service and other revenue continued to perform well with 21.2% growth. Meanwhile microarray sales grew 10.7% as customers prepare for an influx of consumer genetic tests for the holiday season.
Illumina is engaged in sequencing- and array-based solutions for genetic and genomic analysis. The company provides whole-genome sequencing, genotyping, noninvasive prenatal testing (NIPT), and product support services. Using the company's services, customers can perform whole-genome sequencing projects and microarray projects (including large-scale genotyping studies and whole-genome association studies). The company provides NIPT services through its partner laboratories that direct samples to the company on a test send-out basis in its Clinical Laboratory Improvements Amendments-certified, College of Pathologists-accredited laboratory. The company also provides support services to customers who have purchased its products.
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