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Can Illumina (ILMN) Maintain Balanced Growth in Q3 Earnings?

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Illumina, Inc.ILMN is slated to report third-quarter fiscal 2017 results, after markets close on Oct 24. Last quarter, the company delivered a positive earnings surprise of 20.6% with average earnings beat of 9.3% in three of the trailing four quarters. Let's see how things are shaping up for this announcement.

Key Catalysts

Similar to the prior quarter, Illumina is expected to gain from strong performance in Product revenues as well as Service and other revenue segments. Over the last few quarters, the company's product revenues increased primarily onrising sequencing consumable revenues. Total Service and other revenues are demonstrating strong growth led by continued demand for NextSeq from NIPT customers and partners. We expect these factors to drive the yet-to-be reported quarter's performance as well.

The Zacks Consensus Estimate for Product revenues of $579 million reflects an increase of 12.6% from the year-ago quarter. Also, the Zacks Consensus Estimate for Service and other revenues of $116 million indicates a rise of 24.7% from the year-ago quarter.

Overall, third-quarter 2017 total revenues are projected at $694 million, up 14.3% from the prior-year quarter.

Illumina, Inc. Price and EPS Surprise

Illumina, Inc. Price and EPS Surprise | Illumina, Inc. Quote

Here are the other factors that might influence Illumina's third-quarter results:

Illumina earlier announced that its FDA-approved next-generation sequencing (NGS) -- Extended RAS Panel has met the Current Colorectal Cancer Guidelines. This new kit fulfills the most up-to-date guidance for RAS testing to determine eligibility of epidermal growth factor receptor (EGFR) inhibitors in metastatic colorectal cancer. Management expected the shipment of this kit to start in the third quarter of 2017. Hence, we expect this to drive the top line.

In the second quarter, Illumina witnessed 12% growth in the Asia-Pacific region, propelled by 16% rise in China. Among the emerging markets, China currently offers the most favorable space for Illumina's business growth. In recent times, management has noticed a considerable rise in demand from customers looking to set up NIPT operations in China. With China currently being the fourth largest developing nation (in terms of nominal GDP), we believe the progress in the country will open up channels for Illumina, thereby driving its top line in the yet-to-be reported quarter.

Also, encouraged by the solid second-quarter performance, Illumina has raised its full-year 2017 revenue growth expectations to 12% from the earlier provided range of 10-12%.

On the flip side, a tough competitive landscape may pose a challenge for the company. We are also apprehensive about issues pertaining to NIH funding which Illumina has been facing for quite some time now.

Here is what our quantitative model predicts:

Illumina does not have the right combination of two main ingredients - a positive Earnings ESP and a Zacks Rank #3 (Hold) or better - for increasing the odds of an earnings beat.

Zacks ESP : The Earnings ESP for Illumina i s -0.93%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : Illumina carries a Zacks Rank #3, which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of a positive earnings surprise.

Nonetheless, the Zacks Consensus Estimate for earnings of 98 cents reflects a 1% improvement on a year-over-year basis.

Stocks Worth a Look

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

Abbott ABT has an Earnings ESP of +0.17% and a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Align Technology, Inc. ALGN has an Earnings ESP of +2.06% and a Zacks Rank #3.

Henry Schein, Inc. HSIC has an Earnings ESP of +0.33% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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