Can Illumina (ILMN) Spring A Surprise This Earnings Season?

Illumina Inc. (NASDAQ:ILMN) , a leading provider of tools and integrated systems for analysis of genetic variation and function, is scheduled to report first-quarter 2017 financial results on Apr 25, after the closing bell.

Last quarter, the company reported a positive earnings surprise of 4.94%. In fact, Illumina’s earnings outpaced the Zacks Consensus Estimate in three of the past four quarters, with an average beat of 7.55%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

In the last reported fourth quarter of 2016, Illumina continued to witness robust revenue growth on account of improvement in sequencing consumables and strong demand of microarrays. While management is still emphasizing on its portfolio of sequencing platforms to fortify its market position, we expect the company to maintain top-line growth in the first quarter of 2017 as well.

In this regard, the company expects full-year 2017 revenue growth in the range of 10%–12% for the first quarter of 2017. Revenues are estimated between $580 million and $595 million.

In the last reported quarter, management announced the replacement of its loss-making HiSeq Series with the latest Novaseq series, starting fiscal 2017. Further, the company recently launched VeriSeq NIPT Solution, a CE-IVD marked next-generation sequencing based approach to noninvasive prenatal testing. We believe these developments will boost the company’s top line in the upcoming quarter.

We are also looking forward to GRAIL, Illumina’s recently developed venture for the cancer screening market. The company has started detailed planning necessary to embark on a large-scale clinical trial in 2017 with the goal of demonstrating a stage shift in diagnosis. We believe GRAIL will significantly expand Illumina’s share in the multi-billion dollar oncology market.

On the flip side, weak margins and tough competition will continue to act as major deterrents for the company. We are also apprehensive about the issues pertaining to NIH funding which Illumina is witnessing for quite some time now.

Please note that over the last 30 days, Illumina has seen two upward estimate revisions and no downward revision for the current quarter. On the contrary, the magnitude of the trend remained steady at 64 cents over the same time frame. This mixed trend justifies the stock’s Zacks Rank #3 (Hold).

Earnings Whispers

Our proven model does not conclusively show that Illumina is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here, as you will see below.

Zacks ESP: Illumina has an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 12 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Illumina’s Zacks Rank #3 increases the predictive power of ESP. However, the company’s 0.00% Earnings ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may consider as our model shows that they have the right combination of elements to post an earnings beat in the upcoming quarter:

Galectin Therapautics, Inc. (NASDAQ:GALT) has an Earnings ESP of +13.33% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hill-Rom Holdings Inc (NYSE:HRC) has an Earnings ESP of +1.27% and a Zacks Rank #2.

Syros Pharmaceuticals, Inc. (NASDAQ:SYRS) has an Earnings ESP of +3.85% and a Zacks Rank #2.

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