Durable Goods (Jun F) -9.4% vs 9.3% Prior, Ex-Trans 0.2% vs 0.2%
Tuesday, Illumina Inc. (NASDAQ:ILMN) maintained its Outperform stock rating and $150.00 price target according to Leerink Partners, despite recent challenges in the Chinese market. According to InvestingPro data, the stock has experienced significant pressure, falling over 12% in the past week and trading well below its 52-week high of $156.66. Leerink Partners analysts noted that China’s recent ban on importing Illumina’s gene sequencers is a retaliatory measure following the company’s addition to the Unreliable Entity List (UEL) in early February.
The analysts pointed out that Illumina’s stock price has already reflected concerns regarding the Chinese market, having fallen by 36% since the UEL announcement on February 4, in contrast to a 1% increase in the S&P Healthcare sector. They also mentioned that other factors, such as cuts to the National Institutes of Health (NIH) Indirect Cost (IDC) rates and competitive pressures from Roche, have contributed to the stock’s performance.
Leerink Partners’ model has already excluded revenue and earnings from China, which they believe leaves potential for upside if the restrictions are limited to U.S. exports to China and do not extend to reagents or products manufactured by Illumina in China or other regions. The specifics of the ban’s impact on reagents remain uncertain, as the Chinese government’s announcement focused on gene sequencers.
Despite the export ban, Illumina’s management has indicated that operations in China have remained steady as of late February, and the company is investing in domestic manufacturing within China for instruments, which could mitigate the effects of the ban. However, the analysts suggest that the situation may influence customer purchasing decisions, especially with BGI/MGI seen as a viable alternative in the market.
Illumina has expressed intentions to maintain reagent manufacturing in the United States, indicating that an export ban on reagents could significantly impact the company. Management is actively reassessing the company’s operating structure in China and has stated that direct costs could be reduced to zero if operations in the region become unsustainable. China represents approximately $300 million in revenue for Illumina, accounting for 7% of its total revenue. With total revenue of $4.37 billion in the last twelve months and an EBITDA of $701 million, InvestingPro analysis reveals 10+ additional exclusive insights about Illumina’s financial health and future prospects. Notably, while the company wasn’t profitable in the last twelve months, analysts expect positive earnings this year, with an EPS forecast of $4.59 for FY2025.
In other recent news, Illumina has been placed on China’s "unreliable entities" list, which could affect approximately 7% of its revenue from the Chinese market. This development comes as Beijing announced a ban on the import of Illumina’s machines, part of its response to increased U.S. tariffs. Analysts at Citi have expressed concerns over Illumina’s challenges, suggesting potential pressure on the company’s stock. Further compounding the situation, HSBC has downgraded Illumina’s stock from Buy to Hold and reduced the price target from $190.00 to $100.00, citing risks such as potential sanctions from China and reduced sequencing revenue estimates.
In a bid to counter these challenges, Illumina has unveiled an extensive suite of new omics technologies, expanding its multiomics portfolio. These innovations aim to enhance capabilities in disease research with technologies expected to be commercially available by 2026. Additionally, Illumina has partnered with Broad Clinical Labs to advance single-cell research, aiming to create a 5 billion cell atlas within three years. This collaboration is anticipated to accelerate discoveries in disease modeling and drug development.
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