Sequencing giant Illumina Inc. ILMN is set to release third-quarter 2024 results on Nov. 4 after the closing bell.
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According to the Zacks Consensus Estimate, the company’s third-quarter earnings are expected to surge by 163.6% to 87 cents per share. The estimate has remained unchanged in the past 60 days. However, the Zacks Consensus Estimate for revenues currently stands at $1.08 billion, a 3.7% decrease compared to the last year.
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Illumina has an impressive history of earnings surprise, outpacing the consensus mark in each of the last four quarters, with an average beat of 463.5%.
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Factors Shaping Illumina’s Q3 Results
Over the past several quarters, Illumina’s core business in China has been weak due to the region’s broader economic issues and competitive challenges in the mid-throughput space. The sanctions imposed on Russia as a result of the armed conflict with Ukraine have directly impacted both the company and the behavioral patterns of its customers. Moreover, the current macroeconomic environment has particularly been challenging for Illumina’s mid-throughput business. All these are likely to have followed in the third quarter of 2024, negatively impacting its revenues. The Zacks Consensus Estimate predicts a 2.3% decrease in the Core Illumina segment’s revenues year over year.
Factors like capital and cash flow constraints are expected to have continued to impact the purchasing decisions of the company’s mid-throughput customers. This is likely to have led to lower shipments of mid-throughput instruments, affecting the overall business revenues. Going by the Zacks Consensus Estimate, Core Illumina Instruments revenues are projected to decline by 37.4%.
On a promising note, Illumina’s continued execution of strategic priorities is likely to have aided the performance in the third quarter. The installed base of NovaSeq X Plus instruments — each generating an annual pull-through of more than $1 million — may have increased, favorably impacting Illumina’s top line. Despite this, the number of installations may have been fewer due to significant pre-order launch-related shipments in the comparable quarter of 2023.
In the second quarter, the company introduced its most advanced XLEAP-SBS chemistry into all reagents of its mid-throughput sequencers, NextSeq 1000 and NextSeq 2000, which has seen strong interest. We expect a higher number of 1k/2k instruments to have received the software upgrade in the third quarter, pointing to strong signs of future adoption.
The ongoing transition of customers’ sequencing activity to the NovaSeq X Plus is expected to have driven consumables revenues in the third quarter of 2024. The Zacks Consensus Estimate shows a 4.8% increase in Core Illumina Consumables revenues in the to-be-reported quarter.
In the third quarter of 2024, Core Illumina sequencing service and other revenues are likely to have benefited from an increase in revenues from strategic partnerships and higher instrument service contract revenues on a growing installed base. This is also expected to have favorably impacted the company’s top line. The Zacks Consensus Estimate projects a 6.9% year-over-year increase in revenues from Core Illumina Sequencing Service.
Illumina is likely to have continued to execute its operational excellence initiatives, driving cost savings and enhancing productivity that may have favored its bottom-line growth in the third quarter of 2024.
Meanwhile, in the second quarter of 2024, GRAIL’s multi-cancer early detection test, Galleri, enabled by Illumina’s sequencing technology, drove a 32% increase in the GRAIL Service and other revenues. However, with GRAIL now spun off, completed in June 2024, the company can potentially see a sequential decline in revenues for the third quarter.
Q3 Earnings Whispers for ILMN
Our proven model does not conclusively predict an earnings beat for ILMN this time. A company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), along with a positive Earnings ESP, has a higher chance of beating estimates, which is not the case here.
Earnings ESP: Illumina has an Earnings ESP of -2.16%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks Rank #1 stocks here.
Illumina’s Investment Thesis
To address the current economic challenges, Illumina is working on two priorities. The company is stabilizing its base through the continued rollout of the NovaSeq X Series, laying the groundwork for its customers’ future pursuits. It is focused on operational excellence to help optimize its business. Following GRAIL’s spin-off, Illumina is gearing up for its next growth phase, which is set to be propelled by its core genomics portfolio. The company has laid a three-year roadmap aimed at creating value, rolling out innovations that help reinvent the genome and enable deeper biological insight with complete multiomic workflows.
Earlier this month, Illumina unveiled the MiSeq i100 Series, comprising two new benchtop instruments designed to make NGS (next-generation sequencing) accessible to more labs. These sequencers are said to be four times faster than the company’s original benchtop MiSeq System, introduced back in 2011.
The company is also developing new, scalable growth businesses that complement and accelerate its high-intensity, high-throughput sequencing franchise. The new strategy aims to deliver accelerated revenue growth by 2027, alongside strong bottom-line growth, supported by operational efficiencies and disciplined allocation of significant free cash flows. Meanwhile, the addition of Fluent BioSciences expanded Illumina's multiomics capabilities with highly scalable single-cell technology.
The company also has a solid long-term growth potential in the oncology space, driven by its expanding NGS oncology portfolio. In August 2024, Illumina’s TruSight Oncology (TSO) Comprehensive biomarker secured the FDA’s approval as a companion diagnostic (CDx) test to identify cancer patients with solid tumors who are positive for neurotrophic tyrosine receptor kinase (NTRK) gene fusions for treatment with Bayer's VITRAKVI (larotrectinib) and cancer patients with non-small cell lung cancer (NSCLC) who are positive for RET (REarranged during Transfection) gene fusions for treatment with Lilly's RETEVMO (selpercatinib).
ILMN Stock Price Performance
Over the past year, Illumina shares have rallied 29%, outpacing the industry’s 10.4% growth and the broader Zacks Medical sector’s 16.3% rise. ILMN has also outperformed its peers QIAGEN QGEN and Pacific Biosciences of California PACB in the same time frame.
ILMN One-Year Price Comparison
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ILMN Trading Cheap
At a forward 12-month Price/Earnings (P/E) of 33.59X, Illumina shares are trading at a discount than the industry average of 95.24X.
P/E Ratio Forward Twelve Months (F12M)
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Final Thoughts on ILMN
Illumina seems well-placed to benefit from the increasing high-throughput sequencing consumables revenues as customer activity on NovaSeq X Plus continues to ramp up. Its multi-year growth strategy, supported by innovations across total sequencing workflows and a focus on operational efficiency, brings optimism amid the current macroeconomic environment. Hence, current investors may find it prudent to retain the stock for now. However, given the issues in the company’s core instruments business, prospective shareholders might want to wait for a favorable entry point.
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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.
