Stifel maintains Illumina stock Buy rating with $160 target

On Tuesday, Stifel analysts reiterated a Buy rating and maintained a price target of $160.00 for Illumina stock (NASDAQ:ILMN), despite recent trade tensions with China. The stock, currently trading near $88.74, has experienced significant pressure, falling over 37% in the past year. According to InvestingPro data, analyst targets range from $90 to $247, with a consensus recommendation of 2.32, indicating a moderate buy stance. The firm’s analysis acknowledged the new export restrictions imposed on Illumina by China, which now prevent the company from exporting gene sequencers to the country. This move by China is seen as a response to increased U.S. tariffs and adds Illumina to the unreliable entities list.

The analysts noted that while the ban on exporting gene sequencers to China changes the situation for Illumina, it does not come as a complete surprise given the current trade discussions. With a robust gross profit margin of 68.4% and annual revenue of $4.37 billion as reported by InvestingPro, the company maintains strong operational metrics despite these challenges. Importantly, the ban does not affect the sale of consumables or services, which constitute the majority of Illumina’s revenues in China. Illumina’s management has indicated that business operations in China continue as usual over the past month.

In 2024, instrument sales accounted for 12% of Illumina’s total revenues, excluding Grail, but are believed to be a smaller portion of revenues from China. Revenue from Greater China, which includes Taiwan and Hong Kong, was $308 million in the previous year. Illumina experienced a 19% revenue decline in the region in 2023 and a 20% decline in 2024. Greater China’s contribution to overall company revenue has decreased from 10% in 2022 to 7% last year.

The analysts also pointed out that Illumina’s 10-K filing mentioned the potential for material impairment charges if the company were to cease or significantly reduce operations in China. Investors are advised to look for any such charges in the first quarter earnings report. Illumina occupies approximately 86,000 square feet of lab and office space in China, with leases expiring between 2026 and 2028.

Assuming instrument sales, which are estimated to be 11% of Greater China revenues, drop to zero for the full year, this would result in a $34 million hit. This scenario would create an approximate 80 basis points headwind to overall company organic growth. While challenging, InvestingPro analysis shows the company maintains a healthy current ratio of 1.78 and expects net income growth this year, with analysts forecasting profitability in 2025. For deeper insights into Illumina’s financial health and future prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro. In a more severe situation where Illumina’s entire China business ceases, the impact could be around $300 million to the top line, equating to a 7-point headwind, or a $250 million (6 points to organic) headwind compared to the year’s initial expectations for China. Stifel analysts estimate this could lead to a $0.30 adjusted EPS headwind for FY25, though they expect cost-cutting measures would mitigate the impact.

In other recent news, Illumina has faced several developments impacting its financial outlook and market position. Wolfe Research and Leerink Partners both maintained an Outperform rating on Illumina, with a price target of $150, despite China’s ban on importing the company’s sequencers. This ban, part of retaliatory measures by China, could delay Illumina’s earnings per share forecast for 2025 to 2026, according to Wolfe Research analysts. Meanwhile, Leerink Partners noted that Illumina’s revenue and earnings from China have been excluded from their model, indicating potential upside if restrictions are limited.

Conversely, Citi analysts initiated a 90-day downside view on Illumina, citing challenges such as competition from Roche’s new SBX technology and cuts in funding from the National Institutes of Health. HSBC also downgraded Illumina from Buy to Hold, slashing the price target to $100, reflecting concerns about near-term risks and structural growth slowdown. Illumina’s management is exploring options to maintain operations in China, including investing in domestic manufacturing, which may mitigate some effects of the ban.

The ban has led to gains for Chinese genetic sequencing stocks, with companies like MGI Tech and BGI Genomics seeing significant share increases. Illumina’s management continues to engage with relevant parties to address the situation, as China represents approximately 7% of its total revenue. As the company navigates these challenges, investors are closely watching how Illumina adapts to the evolving regulatory landscape.

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