Illumina Inc.ILMN is slated to report its fourth-quarter and full year 2015 financial numbers on Feb 2, after the market opens.
Last quarter, the company had delivered a positive earnings surprise of 1.27%. In fact, Illumina’s earnings have outpaced the Zacks Consensus Estimate in all of the past four quarters, with a solid average beat of 10.44%. Let’s see how things are shaping up prior to this announcement.
Why a Likely Positive Surprise?
Our proven model shows that the company is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: Illumina has an Earnings ESP of +1.22%. That is because the Most Accurate estimate is 83 cents while the Zacks Consensus Estimate is pegged lower at 82 cents. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Edwards has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of Illumina’s Zacks Rank #3 and +1.22% ESP makes us confident of a positive earnings beat at the company.
What Is Driving the Better-than-Expected Earnings?
For fourth quarter of 2015, the company currently expects to deliver revenues of $570 million and adjusted EPS in the range of 78–80 cents. The current Zacks Consensus Estimate lies at $582 million and 82 cents respectively.
At the beginning of Oct 2015, Illumina’s share price experienced a strong turbulence, following certain downward estimate revision of the stock. The next blow came when the company projected lower-than-expected revenues for the third and fourth quarters of 2015.
However, since Since the third week of Oct 2015, Illumina’s share price witnessed modest growth and experienced strong momentum thereafter through the end of December. This translated into a decent 36.3% rise in share price through the most part of the fourth quarter. Factors like significant investments in important sections of genomic sequencing, new strategic partnerships, expansion of shareholder value, introduction of new solutions and expanded use of its existing product portfolio paved the way for this smooth uptick in Illumina’s share price movement. This, in turn, keeps analysts positive ahead of Illumina’s fourth quarter earnings release.
Notably, the fourth quarter commenced with Illumina’s launch of the BaseSpace Professional and Enterprise Editions for its already existing BaseSpace genomics computing environment, which is used for next-generation sequencing (NGS) data analysis and management. Management expects these new upgrades to provide the industry’s broadest and most advanced genomics analysis platform.
Further, Illumina unveiled that its HiSeq X Sequencing System now allows customers to perform whole-genome sequencing of non-human species. Also, Illumina recently launched its new TruSeq library preparation kits and Infinium arrays to enable researchers to explore genetic variation on a more comprehensive scale. This in turn will address a broad range of genetic studies from whole exome to population and disease specific genotyping, leveraging Illumina’s industry-leading portfolio of genomic analysis systems.
In December, Illumina entered into a strategic collaboration with its Chinese counterpart Novogene to co-develop a user-friendly diagnostic system based on NGS technology, which will facilitate clinical prenatal DNA and oncology testing in the emerging markets of China. With the Asia Pacific NGS market is expected to grow at a rapid rate of 41.6% during 2015–22. Japan and China being the two noteworthy nations in this market, this partnership should be accretive to Illumina’s financials in the fourth quarter and beyond.
Finally, in mid-December, Illumina, in collaboration with bioMérieux – a world leader in the field of in vitro diagnostics – unveiled bioMérieux EpiSeq, an innovative NGS service that will facilitate epidemiological monitoring and control of healthcare-associated infections. All these aforementioned developments are expected to be positively reflected in the upcoming fourth quarter and full year 2015 results.
On the flip side, the company’s previously committed investments in Helix, GenoLogics ERP, facilities and collaborations, such as the one with Memorial Sloan Kettering, are expected to hike Illumina’s fourth quarter operating expenses sequentially. Stock-based compensation expense is also anticipated to increase sequentially in the fourth quarter, due to the impact of Illumina’s annual grant program, which occurs in December. Additionally, a growing employee base adds to the company’s expenses.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they too have the right combination of elements to post an earnings beat in the upcoming quarter:
Gilead Sciences Inc. GILD, earnings ESP of +2.75% and a Zacks Rank #1.
Trevena, Inc. TRVN, earnings ESP of +23.08% and a Zacks Rank #2.
Alcobra Ltd. ADHD, earnings ESP of +25.93% and a Zacks Rank #2.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment