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Illumina (ILMN) Shares Tumble on Weak Outlook for Sales

California-based large-scale genetic analysis systems and life-science tools manufacturer, Illumina Inc. 's ILMN shares plunged more than 15% in after-hours trading yesterday, following the company's lower-than-expected revenue projection for the third and fourth quarters of 2015.

Recently, Illumina reported its preliminary revenue for the third quarter of 2015. The company is slated to release third-quarter 2015 comprehensive financial results on Oct 21.

Illumina estimates total revenue of $550 million for the third quarter. Although this reflects an improvement of 14% over the prior-year quarter's revenue of $481 million (up 18% at constant exchange rate or CER), the estimated top line fell short of the Zacks Consensus Estimate of $569 million by 3.5%.

According to the company, despite strong demand for sequencing consumables and the HiSeq family of instruments, disappointing performance of instrument sales in the desktop family adversely affected the quarter's overall performance. Geographically, Europe and the Asia-Pacific region continued to record weak instrument sales that led to the shortfall on expectations.

However, the company remains optimistic about its strong competitive position and product development pipeline. Moreover, successful implementation of its market expansion strategy in new geographies is expected to drive significant revenue growth for Illumina in 2016 and beyond, in line with the company's previous long-term guidance.

Illumina did not provide its third-quarter preliminary bottom-line numbers. However, the current Zacks Consensus Estimate for third-quarter earnings is pegged at 83 cents per share.

For full-year 2015, the company currently expects 18% annualized revenue growth (21% at CER) with fourth-quarter revenue of approximately $570 million. The current Zacks Consensus Estimate is pegged at $2.25 billion for full-year 2015, while for the fourth quarter it is $608 million, both ahead of the company's projection.

Notably, this continues as part of the recent stretch of bad news for Illumina that started last week when shares of the company plunged more than 10%, after an analyst at investment bank Leerink Partners downgraded it from Outperform to Market Perform.

The analyst particularly expressed his concern over Illumina's ability to successfully penetrate various diagnostics and consumer applications, citing uncertainty regarding the growth potential of the company's next-generation sequencing ("NGS") products in the research market. He estimated the company's risk-reward profile to be less compelling over the next 12 months.

Further, the analyst was doubtful as to whether Illumina's HiSeq 3000/4000 system, which has been its primary growth driver so far, will be sufficient to drive upgrades and replacements at the same rate as in the previous product cycles (according to GenomeWeb).

According to Investor's Business Daily, this downgrade was partly induced by the earlier-than-expected launch of the new Sequel high-throughput gene-sequencing system of genomic services provider - Pacific Biosciences of California, Inc. PACB . The Sequel system is a direct competitor of Illumina's NextSeq system.

No doubt, this downgrade, followed by the latest lower-than-expected preliminary result has created turmoil in the investment universe.

Zacks Rank

Currently, Illumina carries a Zacks Rank #4 (Sell). Better-ranked stocks in the med-biomed/generic industry include Anika Therapeutics Inc. ANIK and Regeneron Pharmaceuticals, Inc. REGN . Both stocks sport a Zacks Rank #1 (Strong Buy).

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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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