Deutsche Bank Brightens Its View On Illumina

The analyst is optimistic due to positive newsflow in the clinical markets, which should cause higher enthusiasm about the total addressable market among investors.

He applied 10.5 multiple to his 12 months ended September 2019 revenue estimate, to come up with the price target of $250. Investors have historically paid 10.5 times revenue when they had positive expectations about the total addressable market opportunity for next-generation sequencing. Leonard thinks positive expectations over the next 12 months are likely, and he believes the stock is going higher.

Related Link: Illumina Now A Buy Following Q2 Beat, Improved Sales Outlook

The demand for NovaSeq could improve the results of the company going forward, said the analyst. He added that Illumina addressed all the issues for the fast NovaSeq adoption. If the NovaSeq revenue materializes in 2018 instead of in 2019, there would be a 300-bps improvement of the Wall Street's 2018 revenue growth forecast. Leonard believes the upward revision of guidance after the second-quarter earnings results is a bullish sign. He also sees improved sales trends for the company.

Leonard believes investors are right to be concerned about market over capacity, but he thinks the demand for sequencing should grow as costs continue to fall.