Can Solid Overall Growth Drive Illumina's (ILMN) Q1 Earnings?

Illumina, Inc. (NASDAQ:ILMN) is slated to report first-quarter 2018 results, after markets close on Apr 24. Last quarter, the company delivered a positive earnings surprise of 18.03% with the average earnings beat being 13% for three of the trailing four quarters. Let's see how things are shaping up prior to this announcement.

Key Catalysts

Similar to the prior quarter, Illumina is expected to gain from strong Product revenues. Over the last few quarters, the company’s product revenues have been gaining from rising demand for sequencing consumables and instruments as well as the microarray range.

Within consumables, the NovaSeq platform continues to see growth with close to 285 NovaSeq systems currently in customers’ hands since the launch last January. For 2018, NovaSeq shipments are projected in the range of 330 to 350.

Management is hopeful that launches like S4 flow cell, Xp workflow and Nextera DNA Flex library preparation kit will drive NovaSeq demand in the near term.

Given the transition in Illumina’s high-throughput portfolio related to the NovaSeq introduction, instrument revenues have also been rising.

Illumina, Inc. Price and EPS Surprise

Accordingly, the Zacks Consensus Estimate for Product revenues of $621 million reflects an increase of 26.5% from the year-ago quarter.

Total Services and other revenues, which include genotyping and sequencing services, instrument maintenance contracts and revenues from oncology agreements, have also been strong. The upside is being driven by strength in genotyping services due to sequencing instrument maintenance contracts and increased consumer demand.

At NIPT, Illumina won Dutch National contract during the previous quarter along with some other encouraging developments. Per management, these factors will more than double sales from this business in 2018. Moreover, the company is making progress with NIPT adoption, courtesy of continued uptake of VeriSeq NIPT Solution, which includes CE-IVD marked library prep and analysis software.

With MiniSeq and MiSeq shipments accounting for roughly 60% of the new-to-sequencing customer demand and growing NextSeq adoption with commercial customers using the platform in production settings, Illumina’s benchtop portfolio has been encouraging.

The bullish trend is expected to be reflected in the to-be-reported quarter’s results. Thus, the Zacks Consensus Estimate for Service and other revenues of $123 million shows a rise of 15% from the year-ago quarter.

Here are the other factors that might influence Illumina’s first-quarter results:

In January 2018, Illumina announced the launch of the iSeq 100 Sequencing System. This next-generation sequencing system delivers excellent data accuracy, at a low capital cost, making Illumina technology available to virtually any lab. Since the company began shipping the product in January itself, investors will be watching out for the difference it will make to the top-line results in the quarter to be reported.

Geographically, Illumina has been witnessing growing revenues from Europe, the Middle East and Africa (EMEA) led by sequencing instruments and consumables. Solid performance in Asia Pacific propelled by 12% shipment growth in Greater China also encourages us. Recently, management has noticed an uptick in demand from customers who are attempting to set up NIPT operations in China. We believe these developments will open channels for Illumina, thereby enhancing business growth.

Although immaterial for the to-be-reported quarter, the ongoing tensions between the United States and China regarding the imposition of tariffs on imports have raised concerns for major MedTech players as any adverse move may mar sales in China in the near term.

Total oncology testing was up 60% in the last reported quarter. Per management, the solid results were primarily led by continued growth in the translational liquid biopsy segment. Furthermore, Illumina continues to expect robust demand for oncology testing.

Overall, first-quarter total revenues are projected at $743 million, up 24.2% from the prior-year quarter.

What Our Model Suggests

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Illumina has a Zacks Rank #3 and an Earnings ESP of +6.07%, a combination that suggests that the company is likely to beat estimates.

The Zacks Consensus Estimate for earnings of $1.02 reflects a 59.4% rise on a year-over-year basis.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Myriad Genetics, Inc. (NASDAQ:MYGN) has an Earnings ESP of +0.61% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Henry Schein, Inc. (NASDAQ:HSIC) has an Earnings ESP of +3.34% and a Zacks Rank #3.

Quest Diagnostics Incorporated (NYSE:DGX) has an Earnings ESP of +3.19% and a Zacks Rank #3.

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