Why Illumina Shares Jumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Illumina (NASDAQ: ILMN  ) , a life science tool and genetic analysis company, advanced as much as 11% after reporting better-than-expected third-quarter results and raising its full-year guidance above Wall Street's estimates.

So what: For the quarter, Illumina delivered a whopping 25% jump in revenue to $357 million on the heels of numerous product launches and saw its profit rise modestly to an adjusted EPS figure of $0.45-$0.05 better than the Street was expecting. Looking ahead, Illumina is projecting full-year EPS of in a range of $1.75-$1.77 compared to the current Street consensus of $1.72. The one downside would be the slight hit to gross margin that Illumina took as expenses for research and development rose $17 million from the year-ago period.

Now what: Illumina is actually in a very exciting field. I've long felt that the potential to personalize treatment options for cancer patients using genetic analysis could be one of the most transformative tools in improving patient quality of life in the coming decade. But, I'm also a realist that will let standard valuation models get in the way as well. While I would suggest Illumina deserves a premium to the market and sector based on its niche products and the aforementioned market opportunity, I also see the landscape for securing new orders getting tougher with the federal government cutting back on its spending. Let's keep in mind that federal funding helps finance some of the university and research center projects where Illumina's products are used. Therefore, with a forward P/E of 44 I'm perfectly happy being a bystander after today's earnings pop and watching from a distance.

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