What’s Next For Illumina Stock After The Recent 7% Drop?

by Trefis Team
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[Updated: 5/6/2021] Illumnia Stock Average Return

The stock price of Illumina (NASDAQ: ILMN), a gene sequencing company, has seen a 7% drop in just five trading sessions. The decline is largely surprising given that the company’s Q1 results (declared on April 27) were better than the street estimates. The company reported revenues of $1.1 billion, in-line with the consensus estimates, while its adjusted EPS of $1.89 per share was much better than the $1.36 consensus estimates. More importantly, the company’s guidance for the full-year 2021, with revenue growth to be 25% to 29%, and earnings to be between $5.80 and $6.05 per share, were well above the consensus estimates of 24% revenue growth and $5.56 adjusted EPS.

Despite a Q1 beat, Illumina has seen its share price decline over the last week (five trading sessions). The only negative from the earnings announcement was the margin contraction. Illumina has been investing more into R&D and its SG&A expenses also rose in Q1, pushing the overall operating costs by 33%, compared to a 27% growth in the top-line.

But now that the stock has fallen over 7% in just five days, will ILMN stock resume its downward trajectory over the coming weeks, or is a rise in the stock imminent? We believe that the stock will rebound in the near term. Firstly, the company’s Q1 performance was solid and it also revised its full-year guidance upward. Secondly, the company is seeing strong demand for its NovaSeq 6000, the company’s new genome sequencing device, which was launched in August 2020, and this trend is expected to continue in the near term. In fact, Illumina’s Q1 2021 marked its highest first-quarter placements of NovaSeq. Lastly, using the recent trend and ten years of historical stock data, the Trefis AI engine finds that ILMN stock will likely move higher over the next one month (twenty-one trading days), slightly outperforming the broader indices. 

According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price using historical stock data, returns for ILMN stock average around 2.2% in the next one-month (twenty-one trading days) period after experiencing a 5% fall in a week (five trading days). Notably, though, the stock is likely to beat S&P500 returns by 0.4% over the next month (twenty-one trading days).

But how would these numbers change if you are interested in holding ILMN stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Illumina stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

Some Fun Scenarios, FAQs & Making Sense of Illumina Stock Movements:

Question 1: Is the average return for Illumina stock higher after a drop?

Answer: Consider two situations,

Case 1: Illumina stock drops by -5% or more in a week

Case 2: Illumina stock rises by 5% or more in a week

Is the average return for Illumina stock higher over the subsequent month after Case 1 or Case 2?

ILMN stock fares better after Case 2, with an average return of 2.2% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 4.4% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Illumina stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer: If you buy and hold Illumina stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

Question 3: What about the average return after a rise if you wait for a while?

Answer: The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although ILMN stock appears to be an exception to this general observation.

It’s pretty powerful to test the trend for yourself for Illumina stock by changing the inputs in the charts above.

While ILMN stock can see a rebound, it is helpful to see how its peers stack up. Check out Illumina Stock Comparison With Peers to see how ILMN stock compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

[Updated: 3/24/2021] Boston Scientific Vs. Illumina

We think that Boston Scientific (NYSE:BSX) currently is a better pick compared to Illumina (NASDAQ:ILMN). BSX stock trades at about 5.6x trailing revenues, compared to around 18.8x for ILMN. Does this gap in Illumina’s valuation make sense? Actually, to some extent it does, comparing the past performance of these two companies. However, we believe that this gap will narrow going forward in favor of Boston Scientific. While business for both the companies have been hit during the pandemic, due to deferment of elective surgeries, it is expected to see a sharp rebound in 2021, with containment of the Covid-19 virus.

Illumina’s sequencing systems have a base of over 15,000 units currently and it has seen strong growth over the recent years, given the limited competition. Looking at Boston Scientific, the sales growth over the recent years (barring 2020, which was impacted by the pandemic) has largely been driven by higher demand for its neuromodulation and peripheral intervention, which includes stents, balloon catheters, and peripheral embolization devices, among other products. The demand for these products is largely linked to the total volume of procedures performed, which was adversely impacted in 2020. Boston Scientific has come up with several new products, including Watchman FLX, Exalt, Polarx, and WaveWriter Alpha, among others, and it has been gaining market share from the likes of Medtronic. This trend is expected to continue, boding well for BSX stock over the coming years. However, there is more to the comparison between Illumina and Boston Scientific. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at historical revenue growth as well as operating income and operating margin growth. Our dashboard Boston Scientific vs. Illumina: BSX stock looks undervalued compared to ILMN stock has more details on this. Parts of the analysis are summarized below.

1. Revenue Growth

Between 2017 and 2020, Boston Scientific’s revenues grew by about 10% from $9.0 billion in 2017 to $9.9 billion in 2020. Note that 2020 revenues declined 7% y-o-y due to the impact of the pandemic on the company’s business. Looking at Illumina, total revenue grew 14% from $2.8 billion in 2017 to $3.2 billion in 2020, which also reflected a high single-digit y-o-y decline.

2. Operating Income

Boston Scientific’s operating income declined from $1.4 billion in 2017 to $-0.5 billion in 2020, due to a sharp decline in operating margins from 15% in 2017 to -5% in 2020, due to increased operating costs during the pandemic and increased R&D investments. Looking at Illumina, the operating income declined from $606 million in 2017 to $580 million in 2020, due to a contraction in margins from 23% to 18% over the same period. Now, Illumina’s operating margin has been better than Boston Scientific over the last twelve month period as well as over the recent years. Also, Illumina’s margins have been on an upward trajectory till before the pandemic.

The Net of It All

Illumina is a leader in the sequencing systems and it is likely to continue to see expansion of its base. Illumina’s revenue growth, operating income growth, and operating margins, all compare favorably with Boston Scientific over the recent years, and this has been rewarded by the investors in the form of a high multiple that ILMN stock trades at. However, as we look forward, Boston Scientific will likely continue to expand its offerings and gain market share over the coming years, though the company faces stiff competition from Medtronic and Abbott. Illumina will see increased competition in the sequencing market, with companies such as Pacific Biosciences of California also expanding their installed base, and comparatively smaller companies, including Rosewell Biotechnologies making inroads to offer less expensive sequencing options. Also, Oxford Nanopore Technologies has been gaining attention for its different approach to sequencing. We believe that an increased competition will weigh on the multiple that ILMN stock currently enjoys. As such, we believe that the valuation gap between Boston Scientific and Illumina will narrow going forward and BSX stock will offer better returns for long-term investors.

While BSX stock looks like it can gain more, 2020 has also created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Becton Dickinson vs. Abbott.

See all Trefis Price Estimates and Download Trefis Data here

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