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Illumina’s Number Continue to Deteriorate as the Stock Sags

 

Stock (Symbol)

Illumina (ILMN)

Stock Price

$132

Sector
Healthcare
Data is as of
November 21, 2016
Expected to Report
Jan 31 – Feb 6
Company Description
illumina_entranceILMN offers integrated systems, consumables and analysis tools for genetic analysis. It also manufactures sequencing and array platforms, reagent kits and scanning equipment. Its customers include genomic research centers, academic institutions, government laboratories, hospitals and reference laboratories, pharmaceutical, biotechnology, agrigenomics, commercial molecular diagnostic and consumer genomics companies. Its sequencing instruments perform a range of nucleic-acid analyses across a range of sample sizes. Its products and services are used for basic analysis and research, including de novo sequencing, genetic variation analysis, epigenetics and targeted screening, among others. It also provides products and services for other life sciences applied markets, such as agrigenomics. It also offers Clarity Run Manager, Clarity LIMS Silver and Clarity LIMS Gold. Source: Thomson Financial
Sharek’s Take
David SharekWow, Illumina (ILMN) is not doing well at all. Illumina is (was?) the king of gene sequencing, developing state of the art machines that sell for $1 million or more. The company is even developing a medical device that can detect cancer (though ILMN might spin that off into a separate company). The stock used to carry a 60 P/E as profits climbed 52% and 21% in 2014 and 2015. But now in 2016 growth has slowed dramatically. What’s really been hard is Annual Profit Estimates have been sliding. It seemed the company turned the corner 2 qtrs ago when ILMN beat the street and upped guidance (the stock shot up on the news) but then the stock crashed from $185 to $139 when the company warned results would be less than expected in the 3rd and 4th qtr due to a reduction in capital spending by institutions and universities. At 35x earnings ILMN is right at my Fair Value, but there’s continued risk of future estimate reductions and the stock is hitting support here around its 52-week low and if it breaks that it doesn’t have another support level until $75.
One Year Chart
ilmn_2016_q4Last qtr ILMN had 21% profit growth on just 10% sales growth, and beat estimates of 14% growth. But Estimates for NxtQtr fell from 30% to 0% and in the 2QtrsOut estimate from 30% to 20%. The 3QtrsOut estimate is 7% and 4QtrsOut is 2%. Here’s where Annual Profit Est. have gone from the last 4 qtrs:

2016 from $3.61 to $3.38, $3.53 and now $3.32
2017 from $4.32 to $3.99, $4.09 and now $3.73

The spike up in estimates 2 qtrs ago was the reason ILMN went from $150 to $185 (see chart). Then the latest drop came after this recent disappointment. Also, what’s not shown here is the drop from $200 to $150 during Sept/Oct of 2015.

Fair Value
ilmn_2016_q4_phThis stock has had such a high valuation in the past, but the profit growth never really supported such a high P/E, thus I never bought in. Right now I think the stock is worth $131 next year which is basically where it is now. And there could be additional estimate reductions, which if I kept my P/E the same would lower these Fair Values even more.
Bottom Line
ilmn_2016_q4_10yrIllumina has been a good stock to own long-term, but is often on a bumpy road. Gene sequencing has enormous growth opportunity, which is why myself and other institutional investors like the stock. But big institutions aren’t showing strong demand, and there might not be a catalyst to meaningfully boost results until 2018 or later. Or there could be a rebound in academic purchases come 2017. ILMN is hitting support levels here (see chart) but if it falls below $125 the next support isn’t until $75, and computers could push it that way. But if you’re an adventurous investor who takes chances this would be a good time to make your move and buy in,  I’ll continue to watch from the sidelines.
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