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Illumina (ILMN) Down 2.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
In the latest trading session, Barrick Gold (GOLD) closed at $17.22, marking no change from the previous day.

A month has gone by since the last earnings report for Illumina (ILMN). Shares have lost about 2.1% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Impressive Overall Growth Drives Illumina's Topline in Q1

Illumina's first-quarter 2019 adjusted earnings per share (EPS) of $1.60 surpassed the Zacks Consensus Estimate by 19.4%. The bottom line also exceeded the year-ago number by 10.3%.

Including one-time items, the company reported EPS of $1.57 compared with $1.41 a year ago.

Revenues

In the quarter under review, Illumina's revenues rose 8.2% year over year to $846 million. The top line also surpassed the Zacks Consensus Estimate by 1.6% banking on strong consumables growth across Illumina’s sequencing portfolio with strength in all throughput categories and a solid microarray business.

Segment details

During the first quarter, sequencing consumable revenues improved 14% year over year, which included 20% growth in clinical sequencing consumables. Within the high throughput family, as expected, HiSeq consumables persistently declined due to customers' transition to NovaSeq.NextSeq and MiSeq placements witnessed year over year growth, with the strength of the former being driven by strong demand for TSO500.

While Product revenues (78.8% of total revenues) increased 6.2% year over year to $667 million, Service and Other (21.2%) revenues improved 16.2% year over year to $179 million.

Margins

Adjusted gross margin (excluding amortization of acquired intangible assets) was 70.2% in the reported quarter, reflecting an expansion of 40 basis points (bps) year over year.

Research and development expenses rose 23.4% year over year to $169 million and selling, general & administrative expenses escalated 15.3% to $211 million. The operating margin of 25.2% contracted 372 bps from the year-ago level on account of an 18.8% rise in operating costs.

Financial Update

Illumina exited the first quarter of 2019 with cash and cash equivalents plus short-term investments of $3.61 billion compared with $3.51 billion at the end of 2018. Net cash provided by operating activities at the end of the first quarter was $198 million compared with $255 million from the year-ago period.

2019 Guidance

Illumina has reaffirmed its 2019 view. The company still expects revenue growth in the range of 13-14%. Adjusting for certain net specified items with respect to the full year, EPS is once again reiterated in the $6.63-$6.73 band. The consensus mark for earnings is pegged at $6.53, which lies below the projected range. This outlook excludes any impact from the pending acquisition of Pacific Biosciences that is expected to close in mid-2019.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -8.73% due to these changes.

VGM Scores

Currently, Illumina has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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

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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