What to Expect from Illumina Earnings After Preliminary Results Tanked ILMN Stock

On July 11, Illumina ILMN released a preliminary revenue report for Q2. The extremely underwhelming report caused the stock to fall over 15% on the day and it has yet to recover. Until that point, the stock had gained 23% YTD, outperforming the S&P 500 by 5%.

Illumina is set to report its Q2 earnings on Monday, July 29 and investors are waiting to see if there is anything that might help the stock recover from its recent fall.

Overview

Illumina is a San Diego, California-based company that develops and markets products for genome sequencing and related processes. Illumina’s technology allegedly helped bring the cost of sequencing a genome from $100,000 in 2008 down to $1,000 by 2014. In 2017, Illumina announced its intent to develop a “$100 genome.” The project is still being developed and may be a few years away, but it would be a huge breakthrough in the genome sequencing industry.

ILMN is currently trading at a P/E of 43.25, which is significantly below the industry average of 55.17. Although Illumina’s P/E did see a significant drop because of the recent stock price falling, ILMN’s P/E fell below its industry’s average for the first time earlier this year. And ILMN’s recent fall could be an opportunity to invest in a possibly undervalued company.

Q2 Outlook & Earnings Trends

In Illumina’s preliminary revenue report, the company said it expects Q2 revenue of $835 million, just $5 million higher than the same period last year. This expectation is around $50 million lower than the company’s original expectations and is $11 million below last quarter’s revenue.

According to Illumina, a majority of the revenue decrease is associated with “a sizeable sequencing systems and consumables purchase that did not close as expected in the second half of June.” The significant reduction in expected revenue for Q2 will also take a toll on expectations for fiscal 2019. Revenue growth for the year is now expected to be 6%, according to the company, compared to original expectations of 13-14% growth.

The deal is still expected to be completed sometime in 2019, but because it wasn’t closed in June it will have a major effect on Q2 revenue.

 

Although Illumina’s revenue expectations are now significantly lower, Illumina is still projected to post year-over-year growth, as it has done every quarter since Q2 2012. This quarter’s revenue growth, however, will be significantly below the expansion it has experienced and could be a sign of slowing revenue growth. But, looking further ahead, our Zacks Consensus Estimates call for 16.16% revenue growth in fiscal 2020 which could mean the slowdown in growth was just temporary.

Meanwhile, ILMN’s adjusted EPS is expected to shrink 7.69% for the quarter. But, similarly to revenue, the faltering growth appears to be temporary as fiscal 2019 and 2020 EPS forecasts call for 10.84% and 15.82%, respectively.

Bottom Line

Illumina needs to have a good earnings report to help the stock rebound. But, historically, ILMN has fallen following earnings. Illumina has surprised positively five of the trailing six quarters, yet the stock has also had a negative reaction to the earnings report in five of those quarters. This includes Q1 2018 when the firm posted a positive earnings surprise of 40.78%, yet the stock fell over 5%.

In general, price reactions to earnings are highly unpredictable and it often takes more than a positive surprise to boost a stock. That being said, since there is little optimism surrounding Illumina’s earnings report, the stock may see a jump if the company reports something that is even slightly positive or provides optimism for the future.

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