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Illumina (ILMN) Down 1.9% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Illumina (ILMN). Shares have lost about 1.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Illumina due for a breakout? 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.

Illumina Q1 Earnings Top Estimates, Margins Decline

Illumina’s first-quarter 2021 (ending Apr 4, 2021) adjusted earnings per share of $1.89 surpassed the Zacks Consensus Estimate by 38.9%. Moreover, the bottom line improved 15.2% from the year-ago quarter (ending Mar 29, 2021).

The adjustments exclude acquisition-related expenses, primarily the Continuation Payments paid to GRAIL, and certain income tax benefits.

Including one-time items, the company’s GAAP earnings per share was $1.00, down by 14.5% year over year.

Revenues

In the quarter under review, Illumina’s revenues were $1.09 billion, up 27.2% year over year. The top line also exceeded the Zacks Consensus Estimate of $1.08 billion.

The first-quarter revenues were also up 15% from the sequential quarter’s level.

Segment Details

Sequencing Consumable revenues totaled $695 million in the reported quarter, up 25.7% year over year. Sequencing Instrument revenues were $176 million, reflecting a surge of 122.8% from the year-ago figure. However, Sequencing revenues (a subsegment of the Service & Other segment) were $108 million, down 15.6% from the year-ago quarter.

In the first quarter, Illumina witnessed its highest first-quarter placements of NovaSeq, primarily driven by the August 2020 launch of NovaSeq 6000 v1.5 reagents. The latest product led to higher new customer growth as well as additional HiSeq conversions. Also, continued robust adoptions of NextSeq 1000 and 2000, and NextSeq 550 boosted the first-quarter top line.

Notably, the quarter’s figure exceeds the company’s preliminary estimate of $1,085 million announced earlier this month.

Margins

Adjusted gross margin (excluding amortization of acquired intangible assets) was 70.4% in the reported quarter, highlighting a contraction of 243 basis points (bps) year over year.

Research and development expenses increased 26.3% year over year to $197 million, whereas selling, general & administrative expenses rose 36.5% to $374 million. These pushed up operating costs by 32.8% to $571 million.

Adjusted operating income in the quarter was $199 million, up 1.5% from the year-ago income. Adjusted operating margin came in at 18.2%, reflecting a contraction of 461 bps year over year.

Financial Update

Illumina exited the first quarter of 2021 with cash and cash equivalents plus short-term investments of $4.63 billion compared with $3.47 billion at the end of 2020.

The company did not repurchase any common stock in the quarter.

Net cash provided by operating activities at the end of the first quarter of 2021 was $282 million compared with $281 million a year ago.

Capital expenses incurred by the company at the end of the first quarter of 2021 were $42 million compared with $40 million a year ago. Accordingly, free cash flow reported by the company at the end of the first quarter of 2021 was $240 million, down from the year-ago free cash flow of $241 million.

2021 Guidance

Illumina raised its revenue outlook for 2021 to the range of $4.05 billion-$4.15 billion, indicating a surge of 25-28% from 2020 (up from its earlier provided range of $3.79 billion-$3.89 billion indicating 17-20% improvement from the year-ago period). The Zacks Consensus Estimate for the same is currently pegged at $3.97 billion.

Adjusted earnings per share for 2021 is projected in the range of $5.80-$6.05, up from the earlier provided guidance of $5.10-$5.35. The Zacks Consensus Estimate for the same is currently pegged at $5.67.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 7.06% due to these changes.

VGM Scores

At this time, Illumina has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

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

Outlook

Estimates have been 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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