Barclays maintains Illumina stock underweight with $100 target

Tuesday, Illumina Inc. (NASDAQ:ILMN) shares faced challenges as Barclays (LON:BARC) reiterated an Underweight rating and a price target of $100.00. The stock has declined over 12% in the past week alone, trading well below its 52-week high of $156.66. According to InvestingPro data, 11 analysts have recently revised their earnings estimates downward, with price targets ranging from $90 to $247. The reiteration came in response to China’s announcement of an effective ban on the company’s operations, starting today. Barclays analysts highlighted that Illumina’s management had not previously accounted for potential operational difficulties in China within their earnings guidance.

The ban’s announcement, which came weeks ago, did not initially include any adjustments to the company’s guidance prior to their earnings report. Barclays analysts expressed concern that management will likely need to revise their guidance in light of the new development. InvestingPro analysis shows that while the company wasn’t profitable in the last twelve months, with a -$7.69 EPS, analysts expect a return to profitability this year. Get detailed insights and 8 additional ProTips with an InvestingPro subscription. While the specifics of the ban’s implementation remain unclear, given Illumina’s role in supplying critical life sciences research, there may be a grace period to transition ongoing research to Chinese competitors.

Analysts at Barclays also noted that the ban might not immediately eliminate all of Illumina’s revenue from China, which constitutes approximately 7% of its total revenue. Based on the company’s latest reported revenue of $4.37 billion, this puts roughly $306 million at risk. Despite operating with moderate debt levels, the company maintains a healthy current ratio of 1.78. However, they anticipate that the impact might extend into the next year. The ban raises additional hurdles for Illumina to achieve its Long-Range Plan (LRP), which Barclays analysts view as more aspirational than reflective of the company’s core business.

The broader implication of this development, according to Barclays, is that companies in the Tools sector are no longer insulated from trade tensions in China. With a beta of 1.17, Illumina shows slightly higher market sensitivity than average. Discover comprehensive analysis and Fair Value estimates for Illumina and 1,400+ other stocks through InvestingPro’s detailed research reports. They suggest that businesses with local competition in areas such as routine diagnostics could become targets for retaliatory tariffs. The analysts concluded with a cautionary note to the industry, indicating a need to prepare for potential challenges ahead.

In other recent news, Illumina has faced significant challenges due to China’s ban on the import of its gene sequencers, a move that has affected its operations in the region. Despite this, Illumina’s management has indicated that business activities in China remain steady. The company reported that instrument sales, which form a smaller portion of its revenue in China, have been impacted, while the sale of consumables and services continues unaffected. Revenue from Greater China, including Taiwan and Hong Kong, was $308 million last year, representing a decrease in its contribution to the company’s overall revenue. Analysts from Stifel, Evercore ISI, and Wolfe Research have maintained their positive outlooks on Illumina, with price targets ranging from $150 to $160, citing confidence in the company’s ability to navigate these challenges. Citi analysts, however, have expressed concerns about the potential downside due to these developments and competition from Roche’s new SBX technology. Illumina’s exposure to the U.S. academic and government market, which has been affected by NIH funding cuts, adds to the complexity of the situation. As Illumina continues to address these issues, investors are advised to monitor any potential material impairment charges and cost-cutting measures that may arise.

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