Year to date, shares of genomics equipment maker Illumina (ILMN) are up about 13%. However, while the company beat lowered expectations, I'm not ready to log on.
Back on April 18, Illumina pre-announced lower-than-expected first quarter fiscal 2016 results. Revenue estimates were cut from $593 million to $572 million. Full-year sales growth was cut from 16% to just 12%. "We anticipate that our Americas and Asia Pacific regions will meet our expectations for the full year, but that Europe will underperform," the company's statement said.
The shortfall was predominately from soft sales of the HiSeq 4000. The 4000 cost an estimated $1 million. Apparently, 4000 wannabes are skipping the pushy sales guy and are outsourcing their genomic sequencing tasks to owners of the HiSeqX Ten, which is the $10 million monster that can sequence an entire genome in less than three days for $1,000 per genome. (If I knew you could rent time on a HiSeqX Ten, I would have sequenced some dinosaur DNA long ago!)
Then, on July 26, the company beat second quarter estimates and raised full year earnings estimates by $0.13. Illumina said revenue was $600 million, up 11% and slightly ahead of the Street estimate. Gross margins rose 40 basis points to 72.8%, but operating margin fell 480 basis points to 32.6% on higher R&D expense. Illumina earned $0.86 per share in the second quarter.
Management left the previous guidance (12% revenue growth) unchanged, which implies a stronger tone of business in the back half of the year. They guided third quarter sales to a range between $625 million to $630 million, or $3.40 per share. After posting just 6% growth in the first quarter and 11% in the second quarter, the third and fourth have to be blockbusters just to get to the 12% guidance. Third quarter has to grow 13% and the fourth quarter has to post 16% growth.
But here's my problem. While the company beat the second quarter, it still missed three out of the last four quarters. Not a great track record. And yet the stock still trades at 39x fiscal 2017 estimates of $4.22 (and 47x fiscal 2016 estimates of $3.54).In the past, I have been a big bull on Illumina and its technology, but for the time being I will have to sit on the sidelines until the company can get through a few lumpy quarters.