Can Solid Overall Growth Drive Illumina (ILMN) Q3 Earnings?

Illumina, Inc. ILMN is slated to report third-quarter 2018 results, after the market closes on Oct 23. In the last reported quarter, the company delivered a positive earnings surprise of 28.8%. It came up with an average earnings beat of 25.2% in the trailing four quarters. Let's see how things are shaping up prior to this announcement.

Key Catalysts

Over the last few quarters, Illumina’s product revenues have been gaining from rising demand for sequencing consumables and instruments as well as the microarray range. In the last reported quarter, the company saw strong consumables growth across its sequencing portfolio with strength in all throughput categories. The company is expected to gain from these positives in the third quarter as well.

Within consumables, the NovaSeq platform continues to witness growth with strength in the S2 and S4 flow cell. The company also saw impressive ramp up in the newly launched S1 flow cell. Management is bullish about the increasing uptake of NovaSeq platform by new to high throughput customers. Led by HiSeq conversion, capacity expansion and new to high throughput customers, the company has already delivered NovaSeq system to more than 200 different labs worldwide.

Notably, based on the NovaSeq strength, Illumina raised the forecast for sequencing consumables for the second half of 2018. For 2018, NovaSeq shipments are projected in the range of 330-350.

Illumina, Inc. Price and EPS Surprise

Management is hopeful that launches like S4 flow cell, S1 flow cell reagent kit, Xp workflow will drive NovaSeq demand in the near term.

Considering the transition in Illumina’s high-throughput portfolio related to the NovaSeq introduction, instrument revenues have also been rising.

Moreover, riding on solid demand across VeriSeq NIPT, oncology research, translational activity and clinical oncology testing, Illumina expects to see strength in its NextSeq consumables in the to-be-reported quarter.

Accordingly, the Zacks Consensus Estimate for Product revenues is pegged at $675 million, which reflects an increase of 13.3% from the year-ago quarter.

Total Services and other revenues, which include genotyping and sequencing services, instrument maintenance contracts and revenues from oncology agreements, have been improving. The upside is driven by strength in genotyping services courtesy of sequencing instrument maintenance contracts and increased consumer demand.

Relative to the non-invasive prenatal testing (NIPT) unit, the company won Dutch National contract in fourth-quarter 2017 along with other encouraging developments. Illumina earlier noted that, these factors will more than double sales from this business in 2018.

Moreover, the company is making progress with NIPT adoption, courtesy of continued uptake of VeriSeq NIPT Solution, which includes CE-IVD marked library prep and analysis software. The Netherlands, Denmark have started covering the test followed by England and France. The company continues to see positive reimbursement trends in Europe as well. While the Netherlands program is in its earlier stages of its ramp, it is expected to lead to VeriSeq sales more than doubling in 2018.

The worldwide bullish reimbursement trend is expected to boost Illumina’s third-quarter top line as well. The Zacks Consensus Estimate for Service and other revenues is pegged at $151 million, which shows a rise of 28% from the year-ago quarter.

Here are other factors that might influence Illumina’s third-quarter 2018 results:

Geographically, Illumina has been witnessing growing revenues from Europe, Latin America and the Asia-Pacific region led by sequencing instruments and consumables. Solid performance in Asia Pacific propelled by 42% shipment growth in Greater China bodes well.

Also, revenues from Europe, Middle East and Africa rose impressively on strong contribution from the Genomics England program that sequenced more than 70,000 co-genomes in the last reported quarter. 

Overall, third-quarter total revenues are projected to be $825.1 million, indicating a rise of 15.6% from the prior-year quarter.

What Our Model Suggests

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Illumina has a Zacks Rank #4 (Sell) and has an Earnings ESP of +2.27%, a combination that does not conclusively show earnings beat for Illumina.

The Zacks Consensus Estimate for earnings of $1.25 reflects a 12.6% rise on a year-over-year basis.

Notably, we caution you against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Worth a Look

Here are some medical stocks worth considering as these have the right combination of elements to post an earnings beat in the to-be-reported quarter.

Baxter International Inc BAX has an Earnings ESP of +0.90% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher Scientific Inc. TMO carries a Zacks Rank #3 and has an Earnings ESP of +0.48%.  

Myriad Genetics, Inc. MYGN has an Earnings ESP of +3.41% and a Zacks Rank #3.

5 Medical Stocks to Buy Now

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Thermo Fisher Scientific Inc. (TMO): Free Stock Analysis Report
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