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Can Sequencing Products Aid Illumina (ILMN) in Q4 Earnings?

Zacks Equity Research

Illumina, Inc. ILMN is slated to release fourth-quarter and fiscal 2019 results on Jan 29, after market close. In the last reported quarter, it posted a positive earnings surprise of 37.86%. The company generated better-than-expected earnings in three of the trailing four quarters, with a surprise of 14.15%, on average.

Let's discuss the factors that are likely to have impacted its performance in the quarter.

Key Catalysts

Sequencing Products

For the past few quarters, Illumina has been registering strong growth in its sequencing portfolio on growing demand for sequencing consumables, offset by a decline in arrays revenues and HiSeq consumable shipments. This along with the ongoing softness within the DTC (direct-to-consumer) market is likely to have marred the company’s array business in the fourth quarter.

Illumina, Inc. Price and EPS Surprise

 

Illumina, Inc. Price and EPS Surprise

Illumina, Inc. price-eps-surprise | Illumina, Inc. Quote

However, Illumina is upbeat about the progress with respect to accelerating the adoption of comprehensive genomic profiling and the next-generation sequencing (“NGS”) tests. The company’s 523 gene oncology panel TSO 500 assay expansion is likely to have driven sales, which is expected to get reflected in fourth-quarter revenue results.

Illumina is optimistic that NovaSeq consumables revenues are likely to have been better than that reported in the third quarter, backed by continuing conversion from HiSeq and expansion of sequencing volume. NextSeq and NovaSeq, which have been increasingly witnessing wider customer adoption, are likely to have maintained the robust third-quarter performance in the fourth quarter. NextSeq system shipments, which were strong in the third quarter, are likely to have maintained the momentum on high NextSeq DX adoption.

However, for the year, NovaSeq shipments are likely to have been flat and growth of the sequencing business is expected to have been slightly low due to a shift in the revenue mix, primarily between sequencing consumables, and sequencing service and other. In contrast, the company is upbeat about results of its Low-Throughput system family shipments — including MiSeq, MiniSeq and iSeq — backed by strength in the EMEA region.

Sequencing Service

The Sequencing Services portfolio has been registering robust revenue growth on higher IVD licensing and oncology development revenues. Strength in IVD licensing and oncology development is expected to have contributed to the top line in the fiscal fourth quarter. The company is particularly hopeful about the TruSight oncology program as it provides a clear opportunity to fast-track the clinical adoption of NGS-based IVD tests through partners, including QIAGEN and Adaptive. However, the company is apprehensive that declining Gel sequencing volumes have most likely dented revenue growth in the to-be-reported quarter, as was the case in the last reported quarter.

Strength in Illumina’s Nextera Flex Solutions is likely to get reflected in the upcoming results as well.

The Zacks Consensus Estimate for fourth-quarter total sequencing revenues is pegged at $832 million, suggesting an increase of 3.4% from the last reported quarter.

Q4 and Fiscal 2019 Estimates

The Zacks Consensus Estimate for total revenues of $947.02 million suggests growth of 9.23% from the prior-year quarter’s reported figure. Also, the consensus mark for earnings of $1.59 per share indicates 20.45% rise from the year-ago quarter's reported figure.

For the year, the Zacks Consensus Estimate for total revenues is pegged at $3.54 billion. The same for earnings is pegged at $6.46 per share, suggesting an improvement of 12.94% from the year-ago period.

What Our Quantitative Model Predicts

Our proven model does not conclusively predict an earnings beat for Illumina this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat but that is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Illumina has an Earnings ESP of +0.63%.

Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).

Stocks Worth a Look

Here are a few medical stocks worth considering, as these have the right combination of elements to post an earnings beat this quarter.

DexCom, Inc. DXCM currently has an Earnings ESP of +17.07% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

DENTSPLY SIRONA Inc. XRAY presently has an Earnings ESP of +1.16% and a Zacks Rank #2.

Tandem Diabetes Care, Inc. TNDM has an Earnings ESP of +27.59%. It currently sports a Zacks Rank #1.

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