ILMN :Crushes 2Q:06 Estimates And Raises Guidance
2006-07-19 07:21 (New York)
Piper Jaffray & Co. Company Note
July 19, 2006
(ILMN - $28.86)
Outperform Volatility: Medium
Crushes 2Q:06 Estimates And Raises Guidance
Edward A. Tenthoff Reason for Report:
212 284-9403, edward.a.tenthoff@pjc.com
KEY POINTS:
Illumina beat 2Q:06 estimates with total revenues of $41.6 million and GAAP
EPS of $0.14. Management raised guidance to $140-$160 million for the year,
representing astounding top-line growth of 125% at the middle of the range.
We continue to recommend purchase of shares of this dominant genotyping play
and are increasing our price target to $50.
* Illumina reported total revenues of $41.6 million, well above our estimated
$33 million, supporting our thesis that the company continues to gain
genotyping market share from Affymetrix. Illumina signed new contracts with
deCODE genetics (DCGN) and CHoP at UPenn during the quarter and more
recently J&J.
* Product sales of $36 million in 2Q:06 beat our $27 million estimate, up 57%
sequentially and 188% year over year!
* In response, Affymetrix announced that it is reducing the price of its 500K
genotyping set to $250. We view this as a desperate move as the company
attempts to halt Illumina's momentum ahead of Affymetrix rushing to launch
the 1 million SNP array next year.
* While all researchers are price-sensitive, conversations and survey results
consistently indicate that reliability, reproducibility, and data quality
rank higher in importance with customers. We believe that Illumina will
continue to command a price premium; it recently introduced the HumanHap
650Y array.
* GAAP gross margins of 67.3% were essentially in line with our expectations.
Overall operating expenses, excluding stock comp, were slightly lower with
R&D of $7.7 million above our $7.5 million estimate and SG&A of $10.8
million below our $11.5 million budget. Stock options expense was $3.3
million in the quarter.
* As a result, Illumina reported better proforma net income of $10 million or
$0.21 per share and GAAP of $6.8 million or $0.14. This was significantly
higher than our proforma EPS estimate of $0.08 and GAAP of $0.02, which was
at the top of management's guidance range.
* Going forward, we look for Illumina to maintain momentum and continue to
generate strong revenue growth. Management increased FY06 guidance by $30
million to $160-$170 million. We now look for 2006 product sales growth of
149% to $144 million and total revenue growth of 126% to $166 million. This
projected growth rate significantly outpaces all competitors in the tools
sector.
* We now estimate Illumina will achieve 2006 proforma net income of $37.7
million or $0.77 per share and a GAAP net income of $22.6 million or $0.46.
From To Price: $28.86
Changes (Previous) (Current) 52 Week High: $32.60
Rating -- Outperform 52 Week Low: $10.82
Price Tgt $34.50 $50.00 Price Target: $50.00
FY06E Rev (mil) $135.2 $165.9 (40x 2007E pro forma EPS of
FY07E Rev (mil) $195.7 $239.4 $1.25)
FY06E EPS $0.33 $0.46 Shares Out (mil): 50.1
FY07E EPS $0.69 $0.89 Market Cap. (mil): $1,445.9
Avg Daily Vol (000): 730
Book Value/Share: $3.94
Cash Per Share: $3.22
Debt to Total Capital: 0%
Est LT EPS Growth: NM
P/E to LT EPS Growth (FY06): NA
Est Next Rep Date: 10/24/2006
Fiscal Year End: Dec
GAAP EPS estimate includes stock comp
expense.
Rev (mil) 2005A 2006E 2007E EPS 2005A 2006E 2007E
Mar $15.2A $29.1A $54.0E Mar ($0.03)A ($0.00)A $0.19E
Jun $15.8A $41.6A $59.6E Jun ($0.07)A $0.14A $0.22E
Sep $19.5A $44.0E $56.5E Sep ($0.03)A $0.14E $0.21E
Dec $23.0A $51.3E $69.3E Dec $0.01A $0.18E $0.27E
FY $73.5A $165.9E $239.4E FY ($0.13)A $0.46E $0.89E
CY $73.5A $165.9E $239.4E CY ($0.13)A $0.46E $0.89E
FY RM 19.7x 8.7x 6.0x FY P/E NM 62.7x 32.4x
CY RM 19.7x 8.7x 6.0x CY P/E NM 62.7x 32.4x
GAAP EPS estimate includes stock comp
expense.
INVESTMENT RECOMMENDATION:
We reiterate our Outperform rating and are increasing our price target from
$34.50 to $50 due to the strong increase in our 2007 proforma EPS estimate
from $0.69 to $1.25. We are reducing our target multiple from 50x to 40x, at
the low end of the comparable range, in order to be conservative.
RISKS TO ACHIEVEMENT OF TARGET PRICE:
Risks include the development of new technologies that could obsolete
Illumina's products, increased competition, new product adoption and
litigation. Illumina may fail to achieve our sales or earnings forecasts.
COMPANY DESCRIPTION:
Illumina is a leading provider of genotyping technology to the life science
research market. Now, Illumina is expanding into gene expression research and
molecular diagnostics, dramatically expanding the company's market
opportunity.
Important Research Disclosures
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Analyst Certification - Edward A. Tenthoff
The views expressed in this report accurately r |
