Illumina ( ILMN ) shares tumbled on Friday after the DNA-reading behemoth cut its outlook as macro pressures continued to mount on life sciences tools companies.
Illumina expects to ship a total of 330-340 million NovaSeq X instruments for the full year, down from its previous forecast of 390. Illumina announced the NovaSeq Xi in September 2022, touting the system’s ability to sequence more than 20,000 genomes in a year.
Canaccord Genuity analyst Kyle Mixon said in a report that customers are not getting them as quickly as expected. Instead, purchasing restrictions lengthened sales cycles.
“In our view, it is relatively worrisome that deployment expectations have fallen after a strong start to the launch of a product that the company believes will drive long-term growth,” he said. “Given near-term macroeconomic challenges, Illumina lowers 2023 guidance.”
Illumina shares fell 8.1% to 98.37 on the stock market today.
Illumina Stock: Start Slowing
Mixon notes that NovaSeq X’s rollout is slowing. Illumina shipped 97 in the third quarter, up from 109 in the second quarter.
“However, due to extended sales cycles among customers, Illumina expects deployments to decline further,” he said.
That dynamic dampened sales, which rose just 1% in constant currency to $1.12 billion, missing expectations of $1.13 billion, according to FactSet. Adjusted earnings beat forecasts of 33 cents per share. Illumina stock analysts predicted just 14 cents. Illumina is managed up to 10-15 cents.
Evercore ISI analyst Vijay Kumar noted that Illumina is far from the only life sciences instruments company heading into the end of the year.
“Every tool company has so far taken a bearish direction and is pointing to a flat-to-low single-digit forecast for fiscal 2024,” he said. “And Illumina fits that model.”
But he lowered his price target on Illumina stock to 160 from 180. Kumar is still a top performer.
The Grail Headache Continues
Meanwhile, Illumina is still struggling with the Grail headache. In 2021, the company acquired Grail, a cancer detection test, for $8 billion. Despite objections from regulators in the US and Europe, the acquisition went through. Now European regulators have ordered Illumina to abandon Grail.
RBC Capital Markets analyst Conor McNamara says Illumina’s new CEO Jacob Tyson has done the best he can “invent a time machine and convince his predecessor to forget about Gray.” Thayson began his first call as CEO by saying, “Make no mistake. I’m here to focus on the core business.”
“With $64 billion in market cap gone from the August 2021 peak, we think the announcement will cause many investors to reengage with Illumina,” McNamara said in a report.
But McNamara also lowered his price target to 260 from 318. He expects DNA sequencing to become a major part of biopharma research in the future and Illumina to maintain its dominant market position. However, the timing of Illumina’s return to growth is unclear. It still outperforms Illumina stock.
Similarly, Canaccord’s Mixon lowered his price target on Illumina stock to 120 from 210. He also downgraded the stock from buy to hold.
“Importantly, the company noted that its 2024 performance outlook is consistent with 2023 (ie, stable revenue and operating margin levels),” he said. “Indeed, this implies that Illumina’s revenue growth will be nominal for the third year in a row.”
Follow Allison Gatlin on X, formerly known as Twitter @IBD_AGatlin.
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