Monday, June 15, 2009

Illumina Should Continue to Outperform

. Monday, June 15, 2009

By stockOzone team

Illumina, Inc. (NASDAQ: ILMN) develops, manufactures and markets integrated systems for the analysis of genetic variation and biological function. Using its technologies, the Company provides a line of products and services that serve the sequencing, genotyping and gene expression markets. Customers include genomic research centers, pharmaceutical companies, academic institutions, clinical research organizations and biotechnology companies. Its tools provide researchers with the capability to perform genetic tests needed to extract medical information from advances in genomics and proteomics.

The demand for the genome analyzer continues to be very strong and the company has been largely unscathed by the worst recession in decades. During the first quarter, the companysaw several major genome centers place new orders to increase their total capacity. In February, the Genome Center at Washington University in St. Louis agreed to acquire 21 additional GAs taking their total to 35. Toward the end of the quarter, Beijing Genome Institute ordered another 12 systems bringing its total installed base to 29, while Broad Institute added another 22 systems to increase its installed base to 47 units. Interestingly, over 80% of first quarter shipments went to non-genome centers continuing to demonstrate the broad market adoption of the platform and demand for sequence data. In fact, the company shipped a record number of GAs during the quarter with the annualized consumable exceeding the upper bound of its forecasted range of $150,000 to $200,000. Illumina recently introduced a service program to provide high-quality personal genome sequencing for consumers. This is the first service to offer complete coverage of the human genome sequence for under $50,000.

In its most recent quarter, the San Diego, California-based company's net income jumped to $18.8 million or 14 cents a share from $10.7 million or 8 cents a share in the previous year quarter. On an adjusted basis, the company earned $35.4 million or 28 cents a share, up from $22.5 million or 19 cents a share in the first quarter of 2008. Quarterly revenue surged 36% to $165.8 million from $121.9 million in the previous year quarter. It marked the 31st straight quarter of revenue growth.On a segmental basis, quarterly product revenue grew to $156.2 million from $110.7 million, whereas service and other revenue fell to $9.6 million from $11.2 million.Analysts on average were looking for earnings of 19 cents a share on revenues of $163.82 million for the quarter.

Income from operations for the quarter rose to $34.5 million from $19 million in the prior year quarter. Operating margins rose above 32% and as a result, the company generated over $50 million in cash flow from operations which resulted in $30 million of free cash flow. Gross margin in the first quarter of 2009 expanded to 66.4 percent from 60.2 percent in the comparable period of 2008.

For the second quarter of 2009, Illumina expects earnings in the range of 27 cents a share to 30 cents a share and revenue in the range of $168 and $173 million. For 2009, the company expects revenue in the range of $700 and $720 million due to better-than-expected results in the first quarter. On the low end of the range, this is an increase of $10 million over the original guidance of $690 million.

Illumina took the lead in sequencing when it bought Solexa in November 2006 in an all-stock deal worth $600 million at the time. The deal, which will be fully accretive in 2009, is seen as part of the company's aggressive expansion policy. The company's Singapore facility is helping it to lower tax rate and provide opportunities for future capacity expansion. Illumina's product pipeline is the richest it has even been, enabling it to continue its record of innovation and providing great growth opportunities over the next few years.There seems to be tremendous opportunity in the stock of the company as its markets remain robust. Above all, it is still not seeing any material impact from the broader economic environment, and demand for sequencing continues to accelerate.

Looking at the financials, the balance sheet of the company currently has $672.59 million in cash and cash equivalents and $274.79 million in debt. The stock currently trades at a forward P/E (fye 28-Dec-10) of 30.79 and PEG ratio (5 yr expected) of 1.63.

Of the nine analysts who follow the stock, three rate it a Strong Buy while one tags it a Moderate Buy.

Disclosure: Author does not own any of the stocks discussed here.





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