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BofA Double Downgrades Illumina After Thursday's 'Big Miss'

Jayson Derrick

DNA sequencing and array-based technologies company Illumina, Inc. (NASDAQ: ILMN) pre-announced second-quarter results Thursday that represent a "big miss" versus expectations, according to Bank of America Merrill Lynch. 

The Analyst

Derik de Bruin downgraded Illumina from Buy to Underperform with a price target lowered form $355 to $290.

The Thesis

Illumina said Thursday it expects second-quarter revenue to be roughly flat year-over-year at $835 million, which is short of the $890 million expected, de Bruin said in a Friday note. (See his track record here.) 

The miss can be attributed to three areas, the analyst said:

  • A sizable sequencing systems and consumables purchase that will close later in 2019. 
  • Softness in the direct-to-consumer genomic market.
  • Low to mid-throughput NGS systems and consumables.

On top of a weak second-quarter pre-announcement, Illumina also lowered its full-year sales growth expectations from 13%-14% to 6%.

The revision is "particularly surprising" after management offered positive commentary over recent months, de Bruin said. 

Despite a double downgrade to a bearish stance, the analyst said he remains "emphatically bullish" on the long-term potential and opportunity in the sequencing market.

The ongoing drop in the cost of sequencing has resulted in the company expanding the number of applications, and multiple new markets such as liquid biopsy and population genomics remain in the very early stages, he said. 

Investors should view BofA's bearish stance as merely a function of near-term uncertainty and not a reflection of long-term fundamentals, de Bruin said. 

Price Action

Illumina shares were down 15.91% at $305.80 at the time of publication Friday. 

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Latest Ratings for ILMN

Date Firm Action From To
Jul 2019 Maintains Hold
Jul 2019 Downgrades Buy Underperform
Jan 2019 Downgrades Buy Hold

View More Analyst Ratings for ILMN
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