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Illumina (ILMN) Q3 Earnings: Is a Disappointment in Store?

Illumina Inc.ILMN is scheduled to report its third-quarter 2015 earnings results on Oct 20, after the market closes. Last quarter, the company had posted a positive earnings surprise of 2.6%. Moreover, Illumina's earnings have outpaced the Zacks Consensus Estimate in all of the past four quarters, with an average beat of 19.5%.

Let's see how things are shaping up prior to this announcement.

Factors at Play

Since the beginning of October, Illumina's share price has been witnessing strong turbulence, which caused its Zacks Rank to slide to #5 (Strong Sell). The first blow came with the stock slumping over 10% after an analyst at investment bank, Leerink Partners, downgraded the company from Outperform to Market Perform.

Thereafter, on Oct 5, Illumina's shares plunged more than 15% following the company's lower-than-expected revenue projection for the third and fourth quarters of 2015. Illumina estimates total revenue of $550 million for the third quarter and $570 million for the fourth quarter. The estimated top line is below the Zacks Consensus Estimate of $557 million for the third quarter, while the same for the fourth quarter is also shy of the consensus mark of $571 million for the fourth quarter.

According to the company, despite strong demand for sequencing consumables and the HiSeq family of instruments, sluggish instrument sales in the desktop family adversely affected the third quarter's performance. Also, geographically, Europe and the Asia-Pacific recorded weak instrument sales.

Moreover, government budget cuts, including NIH funding issues and foreign exchange headwinds continue to weigh heavily on the stock.

We are still looking forward to the company's continued initiative to focus on developing its market and expanding its existing sequencing portfolio. This, in turn, is expected to boost the company's growth through the rest of 2015.

Over the past several quarters, Illumina has been trying to penetrate the multi-billion dollar oncology market, on the back of its oncopanel and liquid biopsy programs. With this aim in view, Illumina joined forces with China's Burning Rock Biotech in Aug 2015. Per the deal, the Chinese company will develop advanced clinical applications for molecular diagnostics in oncology utilizing Illumina's NGS technology. This is expected to boost Illumina's business prospects in China.

The company's several recent product launch including TruSight Tumor 15 - an NGS oncopanel - and strategic collaborations like deal with Amoy Diagnostics (to expedite the adoption of precision medicine and targeted therapies in China) are also expected to add value.

Earnings Whispers

Our proven model does not conclusively show that Illumina is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Illumina has an earnings ESP of -3.75%.That is because the Most Accurate estimate is 77 cents, while the Zacks Consensus Estimate is pegged higher at 80 cents.

Zacks Rank: Illumina has a Zacks Rank #5. We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat in the upcoming quarter:

Hologic Inc. HOLX , earnings ESP of +2.38% and a Zacks Rank #2

Myriad Genetics, Inc. MYGN , earnings ESP of +2.86% and a Zacks Rank #2.

Thermo Fisher Scientific, Inc. TMO , earnings ESP of +1.69% and a Zacks Rank #2.

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THERMO FISHER (TMO): Free Stock Analysis Report

ILLUMINA INC (ILMN): Free Stock Analysis Report

HOLOGIC INC (HOLX): Free Stock Analysis Report

MYRIAD GENETICS (MYGN): Free Stock Analysis Report

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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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