gs: Illumina Inc (ILMN)
COMPANY UPDATE Illumina Inc: Beat Q2 on
strong sales. Raised 2006-08 EPS and target
price to $36
52-Week Range US$32-11
YTD Price Change 104.68%
Market Cap US$1.2bn
Current Yield —
Long Term Growth Rate
EPS Growth Estimate NA
Fiscal Year (ending in Dec)
2005 2006E 2007E
US$-0.30 US$0.47 US$0.76
— 61.4X 38.0X
— NA NA
Quarterly Earnings Per Share (US$)
-0.09
-0.10
-0.08
-0.04
0.00
0.14
0.16E
0.15E
Mar Jun Sep Dec Mar Jun Sep Dec
2005 Fiscal Year 2006 Fiscal Year
What"s changed
Illumina reported 2Q2006 EPS (ex. ESO) of $0.21, $0.11 higher than our estimates of
$0.10 mainly due to strong genotyping sales and higher operating margin. Management
raised 2006 EPS guidance to a range of $0.61-0.82 from the $0.26-0.43 issued in 4/06.
Based on the strong trends in sales and margins, we have increased our 2006-08 EPS
(ex-ESO) to $0.76, $1.03 and $1.20 from $0.39, $0.60 and $0.81, respectively. The
corresponding new EPS (incl. ESO) are $0.47, $0.76 and $0.89 versus our prior forecasts
of $0.15, $0.38 and $0.60. The higher estimates led us to raise our 12 month target price
to $36 from $28.
Implications
We expect Illumina shares to react positively to the earnings report. However, investor
enthusiasm may be dampened by Affymetrix? announcement on 7/18/06 that it will cut
the list price of its two-chip 500K SNP genotyping chip to $250. The aggressive price
competition might reduce the growth of Illumina sales.
Valuation
Our new 12-month price target of $36 is derived by multiplying the historic PEG of 1.2, an
adjustment factor of 1.2 to reflect the momentum from turning profitable, our new estimate for 2007
EPS (ex. ESO) of $1.03, and the updated 3 year growth rate of 24%.
Key risks
Risks to our rating and target price are lower sales, increasing pricing pressures, manufacturing
constraints, delay in development & potential acquisitions. The trial on the patent litigation against
Affymetrix has been scheduled for 10/16/06. We expect increased volatility of Illumina shares
around the time of the trial. Appeals are likely and the final decision may take years to reach. A
negative legal outcome could result in significant payments to Affymetrix and/or loss in sales. |
