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Illumina (ILMN) Estimates Cut By Oppenheimer After Q1, 'Perform' Reiterated

 April 24, 2012 02:36 PM

(By Balaseshan S) Oppenheimer & Co. analyst David Ferreiro reiterated his "Perform" rating on shares of Illumina Inc. (NASDAQ:ILMN) given the heightened competition in the NGS marketplace and the expectation for continued weakness in the microarray market.

The brokerage lowered its 2012 EPS estimate to $1.43 from $1.45, while raising its 2013 estimate to $1.61 from $1.59. The firm reduced its 2012 revenue estimate to $1.12 billion from $1.15 billion and its 2013 estimate to $1.19 billion from $1.20 billion.

ILMN revenues of $273 million were down 3% year-over-year and despite distraction from Roche's bid, ILMN delivered strong sequential growth in consumables ($173 million, up 20% sequentially). Consumable results were led by a trifecta of drivers: a rebound in HiSeq consumables, strong MiSeq placements, and exome array's sales.

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ILMN remains on track to ship the HiSeq and MiSeq upgrades in the second half of 2012. Although Q1 results were better than expected, Ferreiro views the lack of a guidance increase as troubling, and wonder if ILMN aggressively pulled revenue forward in response to the Roche bid.

Revenues of $273 million saw consumable pull-through of 299,000/year, a number ILMN believes will increase due to the scheduled Q2 price increase. In addition, higher U.S./Asia-Pac utilization rates, overall sequencing consumable orders growth, and increased exome array utilization bolstered revenues. Adjusted EPS of $0.36 are above the analyst's/Street's $0.32 estimates.

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ILMN notes that orders placed in advance of its Q2-2012 price increase have increased backlog visibility and allowed for manufacturing efficiency. However, considering the recent V3 chemistry extra capacity issue, Ferreiro worries demand might wane following the Q2-2012 price increase.

MiSeq pricing held up, and ILMN claimed average selling prices were slightly higher than list. Greater than half of MiSeq sales were to diagnostic customers, in contrast to HiSeq, which remains primarily an academic tool. Ferreiro estimates ILMN placed 200 MiSeq systems in Q1-2012. A 510K submission is expected by year-end 2012.

The global funding environment is more stable than in 2011 with the U.S. exhibiting normalized buying patterns, the EU growing and Asia delivering the strongest growth (+20% sequentially). Additionally, ILMN believes sequestration is unlikely. While it is difficult to predict NIH budgeting, Ferreiro remains confident that bipartisan support will persist.

ILMN reaffirmed 2012 guidance for revenue of $1.1 billion to $1.175 billion and EPS of $1.40 to $1.50. Given better than expected Q1 revenue/EPS, Ferreiro is cautious on management's unchanged outlook.

Illumina is a developer and manufacturer of life science tools and integrated systems for the analysis of genetic variation and function. The company provides a line of genetic analysis solutions, with products and services that serve a range of interconnected markets, including sequencing, genotyping, gene expression, and molecular diagnostics.

ILMN is trading down 1.50% at $43.24 on Tuesday.



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