Evercore ISI maintains Illumina stock Outperform with $160 target

On Tuesday, Evercore ISI reiterated its Outperform rating on Illumina stock (NASDAQ:ILMN), with a price target of $160.00. The reaffirmation comes amid market uncertainties and significant stock pressure, with InvestingPro data showing a 37% decline over the past year and the stock trading between $83.79 and $156.66 over the past 52 weeks. According to InvestingPro analysis, the company maintains a FAIR financial health score of 2.07 out of 5, suggesting room for improvement. Analysts at Evercore ISI believe the stock should stabilize once the market fully accounts for the recent news concerning China’s regulatory environment.

The analysts at Evercore ISI have taken a two-pronged approach to evaluating Illumina’s financial outlook in light of potential revenue loss from China. Their first take assumes that if Illumina’s revenue from China drops to zero and no cost-cutting measures are implemented, the company’s earnings per share (EPS) could decrease by approximately 50 cents. This assumption is based on the premise that Illumina’s operating margin (OM) in China is double that of the corporate average at about 45%, and that there would be no research and development (R&D) expenses in China, considering Illumina exports to the country.

Despite the potential for zero revenue from China, Evercore ISI notes that Illumina’s stock is trading at the lower end of the life sciences tools (LST) price-to-earnings (P/E) and enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) ranges. Recent InvestingPro data reveals the company generated $4.37 billion in revenue over the last twelve months, with a robust gross margin of 68.37%. While currently unprofitable, analysts tracked by InvestingPro expect the company to return to profitability this year, with forecasted earnings per share of $4.59 for 2025. Excluding China, Illumina’s base EPS is around $4.10, which does not factor in any cost actions or accelerated cost-saving plans. Currently, Illumina’s stock is trading at approximately 20 times its calendar year 2025 (CY25) P/E, which is in the lower half of its historical trading range.

Furthermore, the analysts have considered a scenario where Illumina’s revenue is impacted by a 15% cut from the National Institutes of Health (NIH) and a normalization of operating margin to around 30%. Under these conditions, Illumina would trade at about 15 times P/E and 10 times EV/EBITDA. The Evercore ISI team expressed confidence in Illumina’s ability to achieve a 30% OM, citing that the company’s gross margins (GMs) are approximately 1000 basis points above the industry average.

The analysis by Evercore ISI highlights the resilience of Illumina’s financials despite challenges posed by policy uncertainty and potential revenue changes in China. The firm’s outlook suggests that Illumina’s underlying business strength and ability to adjust margins may support the stock’s performance going forward. For deeper insights into Illumina’s valuation and growth prospects, InvestingPro subscribers can access comprehensive financial health metrics, 10 additional ProTips, and a detailed Pro Research Report that transforms complex Wall Street data into actionable intelligence.

In other recent news, Illumina Inc. is navigating a challenging landscape following China’s ban on importing its gene sequencers. This development comes as China has added Illumina to its unreliable entities list, a move perceived as a response to increased U.S. tariffs. Despite these challenges, Stifel analysts have maintained a Buy rating with a $160 price target, noting that while instrument sales are impacted, the ban does not affect the sale of consumables or services, which are significant revenue sources for Illumina in China. Wolfe Research and Leerink Partners have both upheld their Outperform ratings, with price targets set at $150, reflecting confidence in Illumina’s long-term potential despite current headwinds.

The ban could affect Illumina’s earnings per share forecast for 2025, potentially delaying it to 2026, as noted by Wolfe Research. Leerink Partners has adjusted their models to exclude revenue and earnings from China, suggesting potential upside if the restrictions remain limited. Meanwhile, Citi analysts have initiated a short-term downside view, citing the challenges from the Chinese market and competitive pressures from Roche’s new SBX technology.

Illumina’s management is actively reassessing its operations in China and has indicated that business there continues as usual. However, the company is investing in domestic manufacturing within China to mitigate the ban’s effects. The situation remains fluid, with Illumina engaging relevant parties to seek a resolution, as the Chinese market represents approximately 7% of its total revenue.

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