Illumina: Reasons To Be Bullish by Michael A. Gayed

Summary

• Illumina reported $953 million in revenue for Q4 2019, a 10% increase over $867 million in revenue clocked in Q4 2018.
• Though the stock is very expensive at $290 (as of Jan 31, 2020) and has been rated as bearish by many analysts, it still looks like an attractive stock.
• I've rated it as a buy because Illumina is a leader that has captured 70% of market share and is operating in a market that has started booming.
• I do much more than just articles at The Lead-Lag Report: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Eventually, we'll be able to sequence the human genome and replicate how nature did intelligence in a carbon-based system. - Bill Gates

Illumina (ILMN) had taken a whack immediately after its Q4 2019 results and the general market volatility that followed. Despite that, I am bullish on the stock for the long term and consider it as a buy in a SIP (Systematic Investment Plan).

Image Source: Seeking Alpha

There are valid reasons for my bullishness, and here's my analysis.

Illumina and the Future of the Genome-Sequencing Industry

The Next-Generation Sequencing (NGS) market is expected to grow at a CAGR of 20.9% because of declining costs, improving reimbursements, and advancements in technology.

Image Source: Markets & Markets

Markets and Markets, which provides quantified B2B research, opines that ILMN is the leader in the next-generation sequencing market. The company's platform operates on SBS (Sequencing by Synthesis) technology, which has the largest share of the market.

Morning Star's analysts believe that ILMN operates within a strong economic moat, has captured 70% of the sequencing market share, and has enabled scientists to generate over 90% of the world's sequencing data since 2007.

It is also common knowledge that genomic sequencing is swiftly transitioning into clinical practice, and that genome medicine programs are being called the drivers of transformational change. Costs too are reducing and the future of this business is extremely bright.

Markets and Prospects

ILMN's revenue in the Americas grew 5% in Q4 2019 over Q4 2018. Europe, China, and APJ delivered 19%, 21%, and 4% growth, respectively, for the same period.

There's a special mention to be made about the UK market. By the middle of 2020, genome testing will become a standard of care for more than 20 genetic diseases and four different types of cancers in the UK. Matt Hancock, Secretary of State for Health and Social Care in the UK, is urging the NHS to be more ambitious with the use of technology. This is great news for the company's prospects.

On revenue - it is important to note that of the $953 million revenue for Q4 2019, $812 million pertained to product sales. Of the total product revenue, consumables revenue was $572 million - which is 70.44% of the total sales. An increase in the sale of sequencing equipment will make the demand for consumables rise exponentially.

...Read the Full Article On Michael A. Gayed's Blog on Seeking Alpha

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Author Bio:

This article was written by Michael A. Gayed. An author on Seeking Alpha and founder of the Lead Lag Report.

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