Illumina (ILMN) stock is “challenging to not own,” an analyst said after the genomics firm crushed second-quarter expectations and raised its 2018 outlook.
On the stock market today, Illumina stock popped 12.1% to close at 324.36. It is an IBD 50 stock. Shares are rebounding after a second pullback to the 10-week moving average following its breakout on May 7 from a buy point at 256.74.
This creates a follow-on buy area for Illumina, but shares have already rallied sharply above the 10-week line. That leaves the stock a bit extended — about 20% from the buy point — but investors with high confidence in the company could still try buying shares. A smaller amount of shares than normal would make more sense at this point.
Evercore analyst Ross Muken said in his note late Monday that the Illumina stock story is “far too compelling to ignore.”
“The breadth/scope of portfolio strength in this quarter was truly remarkable,” he said in a report to clients. “We haven’t barely even scratched the surface on many areas driving the notable inflection (such as oncology).”
‘Sizable Opportunity’
Illumina is a genomics firm. Its main products are systems and non-reusable tools to sequence the genome. Exploring the DNA in such finite detail can help researchers learn more about the genetic variations that sometimes lead to disease.
“It is quite an exciting time in genomics/sequencing,” Muken said. “Kudos to management as well for the superb execution as it is one thing to have a sizable opportunity in front of you and another thing to make it a reality in the consistent fashion they have.”
“The sum of all this makes (Illumina) challenging to not own despite the current growth tantrum,” he added.
Genomics Interest Up
The genomics firm beat second-quarter sales expectations by $42 million. The beat stretched across Illumina’s portfolio, Barclays analyst Jack Meehan said in his note to clients. Service revenue topped by 18% and sales of new-generation sequencing consumable tools came in ahead of forecasts by 4%.
Meehan raised his price target on Illumina stock to 350 from 300, and kept his overweight rating. He sees a long runway for customers using NovaSeq, a sequencing system. Customers will adopt the new system over several years as they beef up their sequencing efforts, he said.
He also sees growth coming from the National Institutes of Health’s initiative called All of Us, which aims to have genome sequences from 1 million people in the U.S. Meehan also sees continued adoption among clinical customers and a huge runway in China, which represents 11% of sales.
“The combination of these factors improves our conviction that Illumina can drive midteens growth for the next several years,” he said. Although Illumina plans to do better than that in 2018 and, late Monday, upped its sales guidance to 20% growth.
Robust Growth
Deutsche Bank analyst Dan Leonard also noted robust growth in the quarter. Consumable tools for sequencing grew 35% year over year, including $13 million of stocking orders from China. And even excluding stocking orders, growth of 31% was well ahead of expectations for 25% growth.
“Management also noted NovaSeq utilization hit a new high in the second quarter,” he said in a note to clients. “The NextSeq product (a sequencing kit) also outperformed in the second quarter, posting 50% year-over-year growth in consumables.”
Further, sequencing services grew 38% year over year as demand grows from the Genomics England project, which is ramping up its sample processing, Leonard said. Illumina also highlighted growing interest in noninvasive prenatal testing and rare/undiagnosed genetic disease testing.
Leonard boosted his price target on Illumina stock to 330 from 300, and kept his buy rating. Canaccord Genuity analyst Mark Massaro also raised his price target on shares to 340 from 330 and reiterated his buy rating.
“We continue to rate Illumina as a ‘top pick’ and ‘must own’ stock for 2018,” Massaro said in a note.
