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

Market, Policy Trends Are Shifting In Illumina's Favor, Morgan Stanley Says In Upgrade
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The bearish case for Illumina, Inc. (NASDAQ: 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. 

Latest Ratings for ILMN

Aug 2018ArgusMaintainsBuyBuy
Aug 2018Morgan StanleyUpgradesUnderweightEqual-Weight
Jul 2018Bank of AmericaMaintainsBuyBuy

View More Analyst Ratings for ILMN
View the Latest Analyst Ratings

Posted-In: DNA Morgan Stanley NovaSeq Steve BeuchawAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga


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