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Can Sequencing Products Drive Illumina's (ILMN) Q3 Earnings?

Zacks Equity Research

Illumina, Inc. ILMN is slated to release third-quarter 2019 results on Oct 24, after market close. In the last reported quarter, the company reported a positive earnings surprise of 2.27%. The company generated better-than-expected earnings in three of the trailing four quarters, the average being +10.08%. Let's discuss the factors that are likely to be reflected in the upcoming quarterly results.

Key Catalysts

Sequencing Products

In the past few quarters, Illumina registered strong growth in its sequencing portfolio on growing demand for sequencing and array systems as well as consumables. However, in the last reported quarter, growth was significantly offset by a decline in microarrays revenues. This is likely to get reflected in the company’s third-quarter results. Further, ongoing softness within the DTC (direct-to-consumer) market is likely to have marred the company’s array business in the third quarter.

Of late, Illumina has been witnessing postponements in several programs which, according to the company, are going to delay the entire process of revenue generation through 2019. We expect this to get reflected in third-quarter results.

Illumina, Inc. Price and EPS Surprise

Illumina, Inc. Price and EPS Surprise


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

The company is registering strong growth in oncology testing banking on several launches of personalized therapies, including targeted and immuno-oncology. This has most likely driven the top line in the quarter under review.

Illumina is also upbeat about the recent inclusion of the next-generation sequencing (“NGS”) as an option for germline testing. TSO 500 assay expansion is likely to have driven sales, which is expected to show on the third-quarter revenue results.

Illumina is optimistic about NovaSeq shipment in 2019 and expects its pull through per system to grow as compared to 2018 levels. The company’s strategy includes lower throughput NovaSeq flow cell introductions and pricing adjustments to facilitate the next step of NovaSeq conversions. This is expected to be reflected in third-quarter results.

Sequencing Service

The portfolio of Sequencing Services is currently registering a decline in revenue growth, stemming from the GeL technology. Population genomics are expected to have contributed to the top line in the to-be-reported quarter. However, the company stated that it is cautious as the lead times around these deals are much longer than other deals.

The third-quarter Zacks Consensus Estimate for total sequencing revenues is pegged at $762 million, suggesting an increase of 5.49% from the last reported quarter.

Which Way Are Estimates Treading?

The Zacks Consensus Estimate for total revenues of $871.64 million suggests growth of 2.19% from the prior-year quarter’s reported figure. Also, the consensus mark for earnings of $1.40 indicates 7.89% decline from the year-ago quarter's reported figure.

What Our Quantitative Model Predicts

Our proven model predicts 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 chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Illumina has a Zacks Rank #3 and an Earnings ESP of +1.52%. You can see the complete list of today’s Zacks #1  Rank stocks here.

Other Stocks Worth a Look

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

Addus HomeCare Corporation ADUS has an Earnings ESP of +0.69% and a Zacks Rank #1.

Akcea Therapeutics, Inc AKCA has an Earnings ESP of +18.18% and a Zacks Rank #2.

Deciphera Pharmaceuticals, Inc DCPH has an Earnings ESP of +5.46% and a Zacks Rank #1.

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Illumina, Inc. (ILMN) : Free Stock Analysis Report
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