Market, Policy Trends Are Shifting In Illumina's Favor, Morgan Stanley Says In Upgrade

The bearish case for Illumina, Inc. ILMN has come to an end for four key reasons, according to Morgan Stanley.

The Analyst

Analyst Steve Beuchaw upgraded Illumina from Underweight to Equal-weight with a price target lifted from $210 to $320.

The Thesis

Illumina stands to benefit from multiple market developments and policy changes, Beuchaw said in the upgrade note. (See the analyst's track record here.) 

They are:

• The success of DNA-driven drug administration, which prompted the FDA's support of DNA-based companion cancer diagnostics and expansion of Medicare reimbursements.
• Government funding for DNA analysis could expand globally.
• Consumer interest in DNA-derived applications.
• A global mix shift toward genomic research.

Morgan Stanley's prior bear thesis on Illumina now appears "flawed," but a bullish stance on the stock can't yet be made for the following reasons, Beuchaw said:

• The stock's more than 50-percent return since the start of 2018 implies it is trading at a 17-percent premium to its 10-year historical multiple.
• Expectations for NovaSeq to see a growth deceleration in the third year of its cycle in 2019.
• Any timeline for favorable reimbursement changes are difficult to model.
• Competition could intensify.

Illumina's longer-term market opportunity is "undeniable," but its valuation is stretched at current levels, according to Morgan Stanley. 

Price Action

Illumina shares were trading up 1.75 percent at $338.19 at the time of publication Tuesday. 

Related Links:

Baird Weighs In On Illumina's Guidance, NovaSeq Platform

Illumina Reported Its Fastest Top-line Growth Since 2015

Photo courtesy of Illumina.