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Why Is Illumina (ILMN) Up 6.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Illumina (ILMN). Shares have added about 6.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Illumina due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Illumina reported adjusted earnings per share (EPS) of $1.43 in the second quarter of 2018, beating the Zacks Consensus Estimate of $1.11 by 28.8%. Also, the bottom line exceeded the year-ago number by 74.4%.

Including one-time items, the company reported EPS of $1.41 compared with 87 cents a year ago.

Revenues

In the quarter under review, Illumina's revenues rose 25.4% year over year to $830 million. The top line surpassed the Zacks Consensus Estimate of $787.7 million by 5.4%. The upside can be attributed to strong consumables growth across Illumina's sequencing portfolio with strength in all throughput categories.

Moreover, the NovaSeq platform continued to show strong momentum. NovaSeq consumables grew approximately $40 million sequentially with strong performance by both the S2 and S4 flow cells. The company also witnessed impressive ramp up in the recently launched S1 flow cell.

Product revenues (81.1% of total revenues) increased 23.9% year over year to $673 million, and Service and Other (18.9%) revenues were up 31.9% year over year to $157 million.

Operational Update

Adjusted gross margin (excluding amortization of acquired intangible assets) came in at 68.2%, reflecting an expansion of 420 basis points (bps) year over year owing to a favorable product mix within sequencing consumables.

Research and development expenses rose 16.2% year over year to $151 million, and selling, general & administrative expenses increased 22.4% to $197 million. The adjusted operating margin of 26.3% expanded 620 bps from a year ago.

Financial Update

Illumina exited the second quarter with cash and cash equivalents plus short-term investments of $2.51 billion, up from $2.37 billion at the end of first-quarter 2018. For the first six months, net cash provided by operating activities as of Jul 1, 2018, was $550 million compared with $346 million as of Jul 2, 2017.

2018 Guidance

Illumina has raised its full-year revenue growth expectation to around 20% as compared to the earlier projection of 15-16% rise. Meanwhile, the Zacks Consensus Estimate for the metric is pegged at $3.20 billion.

Adjusting for certain net specified items for the full year, EPS is expected in the band of $5.35-$5.45, highlighting a rise from the earlier forecast of $4.75-$4.85. The consensus mark for the earnings is at $4.87, below the projected range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 10.26% due to these changes.

VGM Scores

At this time, Illumina has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than growth investors.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Illumina has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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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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