Please ensure Javascript is enabled for purposes of website accessibility

3 Things You Can Count On With Illumina's Q4 Earnings Results

By Keith Speights - Jan 26, 2020 at 9:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These are pretty much slam dunks for the company's upcoming quarterly update.

Last year proved to be a disappointment for Illumina (ILMN 4.06%) investors. Although the genomic-sequencing pioneer's shares rose by nearly 11%, it badly underperformed the S&P 500 index. Illumina started off 2020 with bad news as well by throwing in the towel on its planned acquisition of Pacific Biosciences of California because of regulatory obstacles.

Illumina will announce its fiscal 2019 fourth-quarter results on Wednesday, Jan. 29, 2020. There are three things that you can count on with the company's Q4 update.

Image of DNA above an outstretched palm

Image source: Getty Images.

1. Few if any surprises

Probably the most important thing about Illumina's Q4 update is that there's likely to be few if any surprises. The consensus Wall Street estimate is that the company will report revenue of $942.4 million with adjusted earnings per share (EPS) of $1.58. Illumina is likely to slightly beat those estimates -- because the company has already hinted at its Q4 revenue.

CEO Francis deSouza's presentation at the J.P. Morgan Healthcare Conference earlier this month revealed that Illumina expects Q4 revenue of around $950 million. He said that the company had a "strong close to the year" and generated "record revenue."

However, that's not surprising at all. Illumina CFO Sam Samad stated in the company's Q3 conference call in October that the fourth quarter tends to be its highest quarter for sequencing consumables revenue. If there's anything unexpected in Illumina's Q4 results, it will probably be related to expenses that impact the bottom line. However, the best bet is that the company will post numbers in the ballpark of what analysts have estimated.

2. Continued direct-to-consumer headwinds

Illumina's biggest challenge in the third quarter will almost certainly remain its biggest challenge in Q4. A weak direct-to-consumer (DTC) market weighed on the company's Q3 performance and will do so again in Illumina's next quarterly update.

DeSouza acknowledged in the October call that Illumina doesn't "expect DTC to return to growth in the near term." At the J.P. Morgan conference, he said that the DTC market "continues to incrementally erode."

This weakness in the DTC market will show up in Illumina's microarray revenue total. In the third quarter, the company's microarray revenue fell 24% year over year to $102 million. The fourth quarter is usually the strongest quarter of the year for DTC sales as consumers buy kits from Ancestry, 23andMe, and other personal genomics companies. However, don't count on a surge in sales this time around because of the headwinds that these DTC genomics companies face.

3. Strong system placements

There is one bright spot you should be able to bank on with Illumina's Q4 update -- strong system placements. DeSouza said at the J.P. Morgan conference that Illumina shipped around 320 NovaSeq systems and around 620 NextSeq systems in 2019 -- a record high for both products.

He stated that the company shipped over 100 NovaSeq systems in the fourth quarter. This played out pretty much as expected based on Illumina's previous comments.

While NovaSeq and NextSeq are the stars for Illumina right now, look for good news in the company's Q4 update related to its desktop sequencing systems as well. DeSouza mentioned in his J.P. Morgan presentation that around 730 MiSeq systems, 240 MiniSeq systems, and 510 MiSeq systems were shipped in 2019.

Looking farther into the future

It doesn't appear that Illumina will return to tremendous growth in 2020. The company projects that its revenue will increase by 9% to 11% -- solid but not overly impressive. DTC revenue will continue to languish for the foreseeable future.

Illumina should, however, continue to enjoy momentum as customers switch from HiSeq to NovaSeq. Its new NextSeq 1000 and NextSeq 2000 systems should also boost sales. While some healthcare stocks could experience significant volatility in 2020 with the upcoming U.S. presidential election, Illumina should weather any turbulence relatively well since its business wouldn't be as disrupted by potential changes to the U.S. healthcare system as many healthcare companies would be.

Over the long run, the biggest opportunity for the company is in cancer screening, therapy selection, and recurrence monitoring. With this massive market potential, Illumina's long-term future should be even brighter than its near-term prospects.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Illumina, Inc. Stock Quote
Illumina, Inc.
ILMN
$243.22 (4.06%) $9.48
Pacific Biosciences of California, Inc. Stock Quote
Pacific Biosciences of California, Inc.
PACB
$5.73 (3.99%) $0.22

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
338%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.