It's a tough time to be DNA-reading giant Illumina, an analyst said Wednesday as ILMN stock tumbled on its lagging fourth-quarter report.
RBC Capital Markets analyst Conor McNamara laid out Illumina's challenges in a report. Illumina's takeover of cancer-screening company Grail remains in limbo. Though Illumina finished acquiring Grail, European regulators still aren't on board. So, Illumina has had to hold Grail as a separate unit.
Meanwhile, revenue and profits declined last year, and there's now "more noise from competition than (at any time) in company history," he said in a note to clients. "But all of that will be forgotten if the company can execute on the NovaSeqX launch."
NovaSeqX is Illumina's newest DNA reader. It features better chemistry, hardware and analytic tools, and logistical improvements than earlier equipment, McNamara said. He boosted his price target on ILMN stock to 303 from 284 and kept his outperform rating.
But on the stock market today, ILMN stock plunged 8% to close at 198.50.
ILMN Stock: Sales, Earnings Lag
During the December quarter, Illumina earned 14 cents per share on $1.08 billion in sales. Earnings tumbled 81% and lagged forecasts for 26 cents. Sales fell 7% in constant currency. Analysts called for $1.07 billion in sales.
Sales of sequencing instruments tumbled 24% to $146 million, while sales of one-time use tools fell 13% to $687 million. Canaccord Genuity analyst Kyle Mikson noted Illumina experienced macro headwinds and delays in purchases due to anticipation of the NovaSeqX launch.
The company already has more than 155 preorders for the new DNA-reading system and more than 250 instruments tied to the system in its pipeline. That's up from 150 and 200, respectively, in early January, he said in his note to clients.
He kept his buy rating on ILMN stock, noting NovaSeqX could drive shares higher this year.
Further, improvements from NovaSeqX will "help fend off any competition" in the future, according to McNamara, the RBC analyst.
Grail Remains A Challenge
But Grail remains a sticking point for investors. During the December quarter, Grail revenue surged 130% to $23 million. Illumina must hold Grail's financials separate from Illumina's while fighting to retain legal Grail ownership.
For the year, Illumina expects core sales to climb 6%-9% and for Grail revenue to be in the range of $90 million to $110 million. ILMN stock analysts called for $4.97 billion in sales, which would be an increase of 8.4% year over year. They also projected $96 million from Grail.
Management didn't provide a material update on the Grail battle.
"But it sounds like Illumina will be ready to act once the order comes," McNamara said. "A sale; a spinout; or the ability to integrate Grail and extract synergies all offer better outcomes than another year of uncertainty and cash burn. We think any final decision is likely to be a positive catalyst for the stock."
ILMN stock is consolidating with a buy point at 248.97, according to MarketSmith.com. But shares tumbled below their 50-day line on Wednesday.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
