Why Canaccord Genuity Is on the Sideline About Illumina

Health and Healthcare

Published: July 12, 2019 12:50 pm

Last Updated: January 30, 2020 6:41 pm

Illumina Inc. (NASDAQ: ILMN) shares dropped on Friday after the firm announced a preliminary revenue miss and a 50% cut to its 2019 revenue growth guidance. As a result, a few analysts were quick to weigh in on the stock.

Canaccord Genuity reiterated a Buy rating, but lowered its price target to $330 from $377, implying downside of 9% from the most recent closing price of $363.66. While disappointing, and a re-rating to 2019 growth, the firm believes that this does not change the funnel of demand for sequencing, nor does it reveal anything about a change in competitive dynamics.

As per the warning, Illumina expects to report second-quarter revenue of approximately $835 million, compared to $830 million in the second quarter of 2018. The consensus estimate for second-quarter revenue is $880.6 million.

Canaccord Genuity detailed in its report:

We spoke with Illumina, which indicated that the $30 million population genomics shortfall was mostly due to an instrument shortfall. Illumina isn’t permitted to say which government program did not fulfill its large order in the second quarter, but we don’t believe it’s from the US, UK, France or Singapore, but from another country that does plan to fulfill its order later this year. Management indicated it is not a funding issue, but more a matter of getting signoff from various constituencies within the government (a longer, more complicated process than expected).

Separately, Illumina lowered its 2019 revenue growth projection to 6%, from 13% to 14%, an implied $190 million guide-down for the second half of 2019. The company now expects 2019 sequencing revenue growth of 10%, which includes sequencing consumables growth of about 15%, and sequencing service and other to be slightly down year over year. Illumina now expects full-year array revenues to decline 14%, versus its prior flat year over year guidance.

Canaccord Genuity continued:

Based on our conversations with Illumina, it’s our logical intuition that both 23andMe and Ancestry orders were light of Illumina’s expectations, setting up for a really disappointing 2019 for DTC testing. Unfortunately, Illumina doesn’t seem to have visibility for what 2020 will bring, other than for “easier comps.” Illumina appears to be confident that DTC testing will bounce back at some point, but it’s unclear to us if it will happen in the first half of 2020, second half of 2020, or perhaps in 2021 or 2022.

A couple of other analysts had this to say: