Illumina Shares Initiated With Buy, $175 Target At Argus

Although Illumina, Inc. ILMN has a track record of double-digit growth, its EPS has come under pressure in recent quarters. The leading biotech services company is also preparing for a senior management transition.

Argus’ John Eade initiated coverage of Illumina with a Buy rating and a price target of $175, saying that the new CEO is likely to address the recent EPS slowdown with new products and acquisitions.

Performance

Over the past five years, Illumina has generated CAGR of 20 percent in revenues, 31 percent in net income, and 26 percent in adjusted EPS. The company’s shares have gained 117 percent through this period. “But earnings growth has slowed recently and a forthcoming change in management has investors nervous,” analyst John Eade wrote.

New CEO

The company is preparing for the departure of Jay Flatley as CEO in July. Flatley would be succeeded by President Francis deSouza. “We expect Mr. deSouza to address the EPS slowdown through new products and acquisitions, and look for mid- to high-teens earnings growth going forward,” Eade commented.

Expectations

The analyst projected double-digit growth in the coming quarters, with a modest expansion in adjusted operating margins. EPS would benefit from share buybacks. Argus’ 2016 adjusted EPS expectation of $3.62 is above the midpoint of management’s guidance range.