Illumina Plunges After Cutting Estimated Q3 Revenue View
Shares of Illumina (ILMN) plunged in afternoon trading after the biotechnology company cut its estimated revenue view for the third quarter and provided revenue guidance for the fourth quarter.
Q3 REVENUE: After the market close yesterday, Illumina said that estimated revenue for Q3 is approximately $607M, marking a 10% increase compared to $550M in the third quarter of 2015, but falling short of the company's previous Q3 revenue guidance of $625M-$630M for the quarter. Analysts expect the company to report Q3 revenue of $628.06M. Illumina said that the shortfall in Q3 revenue was a result of a larger-than-anticipated year-over-year decline in high throughput sequencing instruments. In addition, the company said it expects Q4 revenue to be flat to slightly up sequentially, compared to analysts' estimates of $684.35M.
EXECUTIVE COMMENTARY: On a conference call regarding the company's Q3 preannouncement, Illumina president and chief executive officer Francis deSouza said that HiSeq 2500 and 400 orders in the Americas have been lower than expected and that the company closed one less HiSeq X system deal than expected, resulting in a shipment figure of 26 X units during the quarter. The CEO also noted that Illumina is no longer counting on the uptick in high-throughput sequencing instruments and that there are a number of large binary deals that "may or may not" close during during the quarter.
STREET RESEARCH: Following the pre-announcement, Citi analyst Daniel Arias downgraded Illumina to Neutral from Buy and cut his price target on shares to $140, noting that the preliminary Q3 revenue figure marked the company's fourth miss in six quarters. Arias said that "forecasting capabilities have clearly diminished" and that the firm would not be surprised to see the hit the $110-$120 range today.
Janney Capital analyst Paul Knight also downgraded Illumina to Sell from Neutral, saying that lack of visibility in whole genome sequencing sales and the continued investment in diagnostics with Helix and Grail will constrain profitability. The analyst added that he believes consumable growth at the company could continue to decelerate. In addition, Wells Fargo, which holds a Market Perform rating on the stock, cut its fiscal 2016 and 2017 EPS views for Illumina to $3.30 and $3.65 from $3.51 and $4.08, respectively, and cut its valuation range to $135-$140 from $145-$155. The firm noted that the news marked the third time in five quarters that Illumina negatively pre-announced and that the company has presented a different narrative every quarter. The firm added that it believes Illumina is experiencing the "growing pains" of a company shifting from the mature academic research market to the more nascent but also more challenging clinical market, which could mean slower growth and more limited profitability.
Piper Jaffray analyst William Quirk kept an Overweight rating on Illumina, but cut his price target on the shares to $150 from $163, saying that the selloff in shares could be a buying opportunity. The analyst said that HiSeq X channel chicks indicated that the pipeline remains very strong at 95 systems, with a majority driven by the Chinese precision medicine program.
PRICE ACTION: In afternoon trading, Illumina shares dropped nearly 26% to $137.57.
OTHERS TO WATCH: Biotech rivals Pacific Biosciences of California (PACB) and Qiagen (QGEN) also fell in afternoon trading.
Disclosure: None.