Leading life science tools manufacturer Illumina Inc. (ILMN) is set to report its third-quarter 2014 earnings on Oct 20. Last quarter, the company had posted an 11.8% positive surprise. In fact, Illumina has delivered positive surprises in all of its last 4 quarters, with an average beat of 11.8%. Let's see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Illumina is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +3.57%. This is because the Most Accurate estimate stands at 58 cents, whereas the Zacks Consensus Estimate is pegged lower at 56 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Illumina currently has a Zacks Rank #2 (Buy). Note that stocks with Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.
The combination of Illumina's Zacks Rank #2 and+3.57% ESP makes us reasonably confident of a positive earnings surprise.
What is Driving the Better-than-Expected Earnings?
Illumina's expansion strategy through the development of strategic partnerships with therapeutics and diagnostic service providers is anticipated to be a value-adding one for the company's earnings. In August, the company formed alliances with three leading pharmaceutical companies to develop a complete NGS-based oncology test system. Given the growing needs for companion diagnostics tests, this collaboration will bring in a new era of advanced commercial solutions for the next generation of molecular oncology and is expected to be profitable for Illumina.
Despite government budget cuts including National Institute of Health's (NIH) funding issues that pose a major concern for management, strong worldwide demand for innovative products and solid contributions from the sequencing business are expected to combat headwinds for Illumina.
For the full year 2014, Illumina expects total sales growth in the range of 25–26% and adjusted earnings per share of $2.26–$2.28. The Zacks Consensus Estimate of $2.19 billion representing a revenue growth of 54% remains much above the company's guided range. The current Zacks Consensus Estimate of $2.30 is also above the company's guided range.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Ligand Pharmaceuticals Incorporated (LGND), earnings ESP of +30.00% and a Zacks Rank #1.
Medivation, Inc. (MDVN), earnings ESP of +13.46% and a Zacks Rank #1.
Prosensa Holding N.V. (RNA), earnings ESP of +12.00% and Zacks Rank #1.
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