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Why is Illumina share price ‘slam dunking’ expectations?

Illumina’s [ILMN] share price got a shot of adrenaline last week. The leader in DNA sequencing and array-based technologies suggested that fourth quarter earnings were looking good, triggering a spate of analyst upgrades for the stock.

 

With analysts backing the stock, is Illumina among the top stock picks in the biotech industry right now?

 

 

 

 

What’s happening with Illumina’s share price?

 

Illumina’s share price surged over 10% last Tuesday to touch an intraday high of $366.20. Those gains continued with the stock closing at $405.14 by Friday, up 9.4% on the week. Those gains, however, have tailed off with Illumina’s share price closing at $383.13 on Tuesday 18 January. 

In contrast, Moderna’s [MRNA] stock has dropped over 11% over the same period, likely in response to news that its omicron-specific vaccine is likely to lag behind competitors’ vaccines.

Over a one year period, Illumina’s share price is up just over 1%, and has suffered a steady downward trend since hitting an intraday high of $526 on 16 August 2021. 

So while the stock is outperforming both the biotech and genome investment themes, which have seen a respective 14.09% and 53.31% decline over the past 12 months, according to our thematic screener, shareholders will be hoping that this week’s downturn in Illumnina’s share price is a blip.

 

Why did Ilumnina’s share price pop

 

Illumina is promising to report  revenue of around $1.19bn for the fourth quarter, at the J.P. Morgan Annual Healthcare Conference. This represents a 25% year-on-year revenue growth and is ahead of the expected $1.1bn. Behind this is record revenue across both its instruments and consumables products.

$4.517billion

Revenue Illumina expects to draw for 2021 - up 39% year-on-year

 

The biotech said preliminary full year 2021 revenues are likely to come in around $4.517bn, up 39% year-on-year and well above an expected $4.42bn.

A toppy forward price to earnings ratio of 91.74, according to Yahoo Finance,  could indicate that the stock is overvalued, especially with revenue forecast to slow down over the next couple of years.

Illumina said that full year revenue 2022 should come in between $5.15nm and $5.24bn. That’s well ahead of the consensus $4.92bn, although still indicates a slowdown in revenue growth.

“We are seeing incredible acceleration of genomics in healthcare, driving an outstanding 2021 for Illumina and strong momentum for 2022 and beyond,” said Francis deSouza, CEO of Illumina. “With growth opportunities spanning our existing and evolving markets in both clinical and research genomics, we are demonstrating through focused and continued innovation how unlocking the power of the genome improves human health.”

 

What the analysts think

 

 “Management decided to body slam our targets we put out last week,” was what Barclays analyst Luke Sergott had to say about the revised outlook. Sergott added that the numbers addressed his Underweight position on the stock and ‘strong’ fundamentals and expansion brought the stock back into ‘tradable ranges’. The analyst upped his target on Ilumina from $350 to $450, moving his rating from Underweight to Equal Weight.

“Management decided to body slam our targets we put out last week” - Barclays analyst Luke Sergott

 

Steifel analyst Daniel Arias also said the numbers were stronger than expected. Arias has a bullish $480 price target on the stock. Another bull is Piper Sandler analyst David Westenberg who has a $450 price target on the stock.

At the start of January, Bank of America upped its rating on Illumina from Underperform to Neutral, citing less downside risks to its estimates.

Among the 18 analysts offering ratings in January, 11 rate the stock either a Strong Buy or a Buy, according to data from Yahoo Finance. Six analysts rate it a Hold, while a single analyst thinks the stock will Underperform. The stock carries an average 429.24 analyst price target - a 12% upside on Tuesday’s close.

February will see Illumina update the market with fourth quarter numbers - investors will have to wait and see if there’s more surprises to drive the share price higher.

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