On Tuesday, Evercore ISI adjusted its financial outlook for Illumina (NASDAQ:ILMN), reducing the price target to $175 from the previous $195, while retaining an Outperform rating on the stock. The firm anticipates a standalone earnings per share (EPS) of over $4.50 for the fiscal year 2025. This projection is based on an estimated 6% organic growth, an improvement of around 200 basis points in operating margins (OMx), and a 24% tax rate, with a share count of approximately 162 million.
The revision stems from a detailed analysis of the company's revenue expectations for the second half of 2024. The current guidance suggests relatively flat revenues, with a 4% decline in the first half organic revenue, followed by an anticipated 4% growth in the second half. However, some skepticism remains due to potential macroeconomic challenges and increased competition from products like Element and Ultima, which could hinder growth in the latter half of the year.
Despite these concerns, Evercore ISI projects a slight contraction of 1% in Illumina's fiscal year 2024 revenue, with an expected rebound in the fourth quarter by approximately 5%. This rebound is anticipated to lay the groundwork for the forecasted 6% organic growth in fiscal year 2025. The analysis takes into account the NovaX system's ability to reduce the price per sample by roughly 60%, although the real-world impact is expected to be less significant. The firm also acknowledges the ongoing discussions regarding the elasticity of demand in response to pricing changes.
Evercore ISI's outlook is cautious, with the expectation that the macro funding environment will continue to be challenging in fiscal year 2025. This forecast is incorporated into the new price target for Illumina, as the firm navigates through the uncertainties of the market and competitive pressures.
In other recent news, Illumina, a prominent player in DNA sequencing technologies, is making significant strides in its business operations. The company recently announced the spin-off of its healthcare company, GRAIL, which focuses on early cancer detection. Set for June 24, this move will see Illumina shareholders receive one share of GRAIL for every six shares of Illumina they own. Post-spinoff, Illumina will retain a 14.5% stake in GRAIL. This development is expected to enhance Illumina's cash generation capabilities and reduce its risk profile, but may also incur incremental charges ranging from $35 million to $50 million.
In the realm of personnel changes, Illumina has appointed Everett Cunningham as its new Chief Commercial Officer (CCO), effective from June 10. Cunningham brings over two decades of commercial leadership experience in healthcare technology, life sciences, and pharmaceuticals. This appointment is expected to bolster Illumina's market dominance in next-generation sequencing and enhance their offerings to meet customer demands.
In the context of analyst notes, both Canaccord Genuity (TSX:CF) and Jefferies have maintained a Hold rating on Illumina's shares. While the spin-off of GRAIL is seen as a positive step, the valuation of GRAIL remains uncertain.
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