Illumina Beats In Q2, But Investment Thesis Remains Unclear

Shares of Illumina, Inc. (NASDAQ: ILMN) hit a new 52-week high of $198.47 Wednesday and ended the day higher by nearly 15 percent after the company reported top- and bottom-line beats in its second-quarter earnings report. However, the results weren't good enough for analysts at Barclays who are calling for downside to the stock.

Barclays' Jack Meehan maintains an Equal-Weight rating on Illumina's stock with an unchanged $150 price target, as the negative aspects of the report outweigh the positive.

The positives include continued expectations related to the NovaSeq launch, the analyst explained. While orders in the quarter fell from 135 in the first quarter to around 95, management's tone remains positive surrounding a multi-year upgrade cycle. The company also placed 80 NovaSeq instruments, and the ongoing momentum improves revenue visibility for the back half of 2017.

On the other hand, 70 percent of Illumina's earnings per share beat came from service revenue (versus product sales) despite better NovaSeq placements in the quarter, Meehan continued. Also, NGS consumables growth was "sluggish" in the quarter at just 9 percent year over year.

"All in, we believe it's still too early to judge whether NovaSeq is driving elasticity of demand in the high-throughput markets, which we believe is necessary to justify the company's valuation," the analyst concluded.

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Image Credit:By Jon Callas from San Jose, USA (Illumina Gene Sequencing machine) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons