Here’s What Pressured Illumina Stock after Its Q2 Results

Yesterday, genome-sequencing company Illumina (ILMN) reported its second-quarter earnings results after the market closed. Illumina reported revenue of $838 million in the quarter. This amount marked a YoY (year-over-year) rise of 0.96%, $2.88 million higher than the consensus estimate. However, its YoY revenue growth fell short of its previous estimate of 7%. According to Illumina’s second-quarter earnings call, the shortfall was partly associated with missed timelines for certain population genomic initiatives. A drop in DTC (direct-to-consumer) sales and lower-than-anticipated non-high-throughput portfolio sales also affected its revenue.

In the second quarter, Illumina reported core EPS of $1.35, a YoY fall of 5.59% but $0.01 higher than the consensus estimate.

Share price movements

Today, the stock was trading at $298.91 in the premarket session. It was down 1.45% compared to its previous close. Yesterday, the stock closed at $304.41, 1.17% higher than its previous close. Illumina stock has risen 1.49% year-to-date.

Investors are still disappointed in the company’s weak 2019 guidance. The stock took a major beating on July 12 after the company announced the reduction of its 2019 revenue forecast. To learn more, read Illumina Tanks on Reduced Revenue Forecast.

Factors affecting 2019 revenue guidance

On its second-quarter earnings call, Illumina guided for YoY revenue growth of 6% for 2019. This estimate was lower than its previous revenue guidance range of 13%–14%. In its new revenue guidance, the company assumes lower revenue from its population genomics initiatives. The adjustment accounts for the possibility of changes in timelines and the slower-than-anticipated ramp-up of the programs. The company saw this trend in the second quarter when certain population genomic initiatives didn’t close according to schedule due to logistical issues.

Illumina also reduced revenue expectations for its array business. According to its second-quarter earnings call, the ongoing weakness in the DTC market led to a high degree of uncertainty in its overall array sales.

The company, however, is confident in the growth potential in the oncology testing market. It expects this growth to be a key driver of its systems and consumables sales in 2019.

Illumina’s valuation

Illumina is currently trading at a forward PE multiple of 41.48x, significantly higher than the industry average. The 17 analysts tracking Illumina have an average target price of $325.43 on its stock. This target indicates a potential upside of 6.91% in the next 12 months.