Illumina stock recovered Thursday after the company torched its outlook on company-specific and macro headwinds. At the close, ILMN stock sank back below its 50-day line.
Illumina is a leader in using next-generation sequencing to "read" the human genome, a key technology as genetic and precision medicines gain steam.
But for the year, Illumina now expects sales to grow just 1%. That's down from its prediction for 7% to 10% growth issued three months ago.
Illumina also expects to earn 75 cents to 90 cents per share, minus some items, widely missing expectations for adjusted profit of $1.27 a share, according to FactSet. The earnings forecast is 55 cents lower, at the midpoint, than Illumina's previous outlook.
Struggles With New System
Illumina struggled in the wake of technological issues following the launch of its new system, NovaSeq X, Canaccord Genuity analyst Kyle Mikson said. Sales of one-time consumable instruments fell as customers transitioned to the new NovaSeq X system. Headwinds remain in China amid the slow Covid recovery.
The company also announced the departure of Chief Technology Officer Alex Aravanis and Chief Medical Officer Phil Febbo.
Still, Mikson remained bullish on Illumina stock. On the stock market today, ILMN stock rose 0.3%, closing at 185.12 and reversing stronger gains. Still, shares recovered from a late Wednesday slide following the company's earnings release.
"Despite a challenging quarter and relatively noisy last few months, we remain bullish on Illumina's long-term growth potential and maintain our constructive investment thesis on the shares," Mikson said in a note to clients. "That said, we fully recognize that, on the surface, the company's second-quarter financial results and departure of its CTO and CMO do not appear highly favorable."
ILMN Stock: Sales Climb And Beat
Second-quarter metrics actually beat expectations late Wednesday. Sales climbed 1% to $1.18 billion and topped projections for $1.16 billion, according to FactSet. Excluding the impact of exchange rates, Illumina's sales increased 3%.
The company also earned 32 cents per share, minus some items. Though earnings fell 44% year over year, they beat predictions for just a 2-cent gain per share.
Illumina also shipped 109 NovaSeq X systems. Given the momentum, Illumina now expects to place at least 390 systems this year, up from its prior forecast for at least 330, Mikson said. However, the rollout has taken longer than expected and customers have experienced technological issues.
Still, "in an environment where other (life science technology) companies are struggling to place instruments, placing 109 NovaSeq X instruments is a huge accomplishment," RBC Capital Markets analyst Conor McNamara said in a note.
He has an outperform rating on ILMN stock.
Grail Process Clarified
Illumina splits its business into two segments: core Illumina sales and Grail. The company acquired Grail for $7.1 billion in 2021 over objections from regulators. Grail makes a cancer screening test called Galleri.
In the second quarter, Grail sales nearly doubled to $22 million, while core Illumina sales were flat at $1.16 billion. For the year, Illumina expects Grail sales to come in at $90 million to $110 million.
Now, Illumina is fighting a legal battle to retain ownership of Grail. The company expects final decisions regarding Grail in late 2023 or early 2024, said McNamara, the RBC analyst.
In July, the European Commission imposed a $432 million fine on Illumina. Illumina plans to issue a guarantee and defer the payment pending the outcome of an appeal, Canaccord's Mikson said.
"We remain supportive of the company's long-term growth potential, recognizing Illumina's near-term outlook is a touch concerning," he said.
Mikson reiterated his buy rating and 300 price target on ILMN stock.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
