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Why Illumina's Q3 Results Were Better Than They Might Seem

By Keith Speights – Oct 30, 2020 at 6:05AM

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The genomic-sequencing leader is recovering more quickly from the COVID-19 pandemic than it anticipated.

Illumina (ILMN -2.60%) doesn't command the respect and awe of investors like it has in the past. Its stock performance reflects this reality, with the genomic-sequencing pioneer's shares down 6% year to date.  

The company announced its third-quarter results after the market closed on Thursday. But did those results improve Illumina's standing with investors? Here are the highlights from the company's Q3 update.

DNA model.

Image source: Getty Images.

By the numbers

Illumina announced Q3 revenue of $794 million, a 12% decrease from the $907 million reported in the same quarter of the previous year. Despite the decline, this result easily beat the average analyst's revenue estimate of $715.9 million.

The company reported net income in the third quarter of $179 million, or $1.21 per share, based on generally accepted accounting principles (GAAP). This was a major move in the wrong direction for Illumina after it generated GAAP earnings of $234 million, or $1.58 per share, in the prior-year period.

It was a similar story with Illumina's non-GAAP bottom line. The genomic-sequencing leader posted adjusted earnings of $150 million, or $1.02 per share, compared to $286 million, or $1.93 per share, in the third quarter of 2019. However, Illumina's adjusted earnings trounced the consensus Wall Street estimate of $0.77 per share.

Behind the numbers

Sure, Illumina's year-over-year comparisons weren't great. However, the COVID-19 pandemic hit in 2020 and not in 2019. Instead of focusing on how the company performed versus last year, it's more helpful to look at how it's rebounding from the pandemic.

Illumina CEO Francis deSouza stated, "Our business accelerated in the third quarter with sequencing consumable revenue growing 29% from the second quarter." Overall, the company's revenue increased by 26% sequentially. That's a faster-than-anticipated recovery, as evidenced by how the company easily beat Wall Street estimates.

DeSouza also noted that Illumina is "making progress incorporating genomics into the standard of care in non-invasive pre-natal testing, oncology therapy selection, and genetic disease diagnosis." In particular, the new American College of Obstetricians and Gynecologists (ACOG) guidelines that recommend non-invasive prenatal testing for all pregnancies is boosting Illumina's non-invasive pre-natal testing (NIPT) business.

The company bought back around $125 million of its shares in the third quarter, which helped increase its earnings-per-share result a little. But Illumina still preserved a massive cash stockpile, ending Q3 with cash, cash equivalents, and short-term investments totaling $3.3 billion.

Looking ahead

Illumina still isn't comfortable with providing full-year 2020 revenue and earnings guidance due to the COVID-19 pandemic. The pandemic remains the top wild card that could impact the performance of the healthcare stock over the next few months.

So what could move the needle in a positive way for Illumina? It might be the company's decision to acquire its former spin-off, GRAIL. That might seem a little surprising, considering that this deal was the primary culprit behind Illumina's shares sinking 13.5% last month.

However, deSouza said, "Looking forward, we believe our planned acquisition of GRAIL will catalyze a new era of early cancer detection, transforming cancer survivability and opening up the largest clinical application of genomics we've seen." If he's right, Illumina might again command the respect and awe that it has in the past.

Keith Speights owns shares of Illumina. The Motley Fool owns shares of and recommends Illumina. The Motley Fool has a disclosure policy.

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