Coverage Initiated on Illumina - Analyst Blog

On Mar 24, 2014, we initiated coverage on life sciences company Illumina Inc. ILMN. Illumina delivered strong fourth-quarter 2013 results with both the top and the bottom line surpassing the respective Zacks Consensus Estimate. However, economic uncertainties regarding lower discretionary spending, NIH (National Institutes of Health) funding cut and unfavorable currency were major dampeners for the quarter.

In the quarter under review, Illumina's adjusted earnings per share of 45 cents scaled a penny higher than the Zacks Consensus Estimate while being 7.1% up year over year. Revenues surged 25.2% to $387.3 million, comfortably beating the Zacks Consensus Estimate of $380 million.

We are impressed with the company's recently released market expansion plan which focuses on three major areas viz. reproductive health, oncology and emerging market. Further, expansion through strategic acquisitions and partnerships with therapeutics and diagnostic service providers are expected to add value. In this regard, a deal worth mentioning is the recent acquisition of NextBio – a forerunner in clinical and genomic informatics.

The company had also acquired Advanced Liquid Logic in Jul 2013. Over the last two years, Illumina has taken significant steps to create and strengthen its position as a leader in the reproductive health market through the acquisitions of Verinata Health in Feb 2013 and BlueGnome in 2012.

Among partnerships, recently in Jan 2014, Illumina signed an agreement with Laboratory Corp. of America Holdings LH whereby the latter gained expanded rights to use Illumina's NGS platform and microarray equipment and supplies to develop and market laboratory-developed tests. In the same month, Illumina inked deals with bigger players such as Amgen Inc. AMGN and Quest Diagnostics Inc. DGX.

However, government budget cut including NIH funding-related issues and unfavorable currency conditions acted as major headwinds for Illumina during the reported quarter. It is also worth noting that the company operates in a fiercely competitive landscape.

The stock currently carries a Zacks Rank #3 (Hold).