Illumina Upgraded to Strong Buy - Analyst Blog

On May 10, we upgraded Illumina Inc. ILMN to a Zacks Rank #1 (Strong Buy). The upgrade came on the back of better-than-expected first-quarter 2014 results and an improved 2014 guidance. Illumina is a life sciences company focused on the development and commercialization of DNA microarray and high throughput DNA sequencing tools for large-scale genetic analysis.

Why the Upgrade?

Illumina displayed a strong operating performance during the first quarter and easily outpaced earnings estimates. While adjusted earnings per share EPS of 53 cents, which were up 15.2% year over year, breezed past the Zacks Consensus Estimate of 44 cents, revenues climbed 27.1% to $420.8 million, surpassing the Zacks Consensus Estimate of $391 million. This marks the tenth quarter of sequential growth at the company.

The company benefited particularly from the strong worldwide demand for products, particularly for its new instruments – NextSeq 500 and HiSeq X Ten and solid contributions from the sequencing business.  Moreover, on the back of solid results across more than 15 different metrics including shipments and orders for sequencing instruments and services as well as HiSeq and MiSeq consumables, Illumina delivered record orders, shipments and revenues in the first quarter of 2014.

Based on its strong first-quarter results and increased demand for HiSeq X Ten, Illumina revised its business outlook for full year 2014. The company now expects adjusted EPS in the range of $2.10–$2.15 (from earlier provided range of $2.00 –$2.06). Revenues are expected to increase at an annualized growth rate of 21%–23% (earlier 15%–17%).

Going forward, Illumina's prospects seem strong on the back of strong global demand for its products and an attractive portfolio along with successful launch of new products like NextSeq 500 and HiSeq X Ten. With the proposed launch of the pre-implantation genetic screening product – VeriSeq PGS to be used on the popular MiSeq platform and a dedicated management team, we believe Illumina is well positioned to exploit a more than-$20 billion market opportunity and eventually meet its revised guidance.

The stronger-than-anticipated results triggered an uptrend in the Zacks Consensus Estimate, as analysts became more constructive on the stock's future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that increased 5.4% to $2.16 for 2014 and 3.9% to $2.64 for 2015 over the past 30 days.

Other Stocks to Consider

Apart from Illumina, other stocks worth considering in the MedTech industry include ANI Pharmaceuticals, Inc. ANIP, Gilead Sciences Inc. GILD and Myriad Genetics Inc. MYGN, all carrying a similar Zacks Rank #1 (Strong Buy).