Illumina Inc

-2.18 (-0.99%)
7:49:08 PM EDT: $218.00 +0.18 (+0.08%)
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Why Illumina Is a Marvel




Illumina's stock price is ripping to all-time highs as its core fundamentals continue to be overwhelmingly strong. 85% of revenues come from product sales while the remaining revenue stream comes from services. The public knows little about this company, but in a wonderfully written piece by Luke Timmerman from Forbes, he writes, "Just as Intel INTC became the company that sparked so much of the computer revolution, Illumina has risen to prominence as a driver of the genomics revolution." That's high praise, and better yet, it's true.

ILMN makes the tools that allow biotechs and pharmas to do their drug trials and get approvals. The company actually makes the machines that sequence genomes, so the company is the very backbone of all other biotech/pharmas hurrying to detect various illnesses or irregularities through DNA-based technology. It's almost impossible to get too excited about the firm's success so far and potential future. Of course, stock prices can get ahead of themselves, but the company itself is in fact a marvel.

ILMN is focusing growth in two areas, namely reproductive and genetic health and oncology. The company has placed a lot of weight and had a lot of success with strategic partnerships including AstraZeneca, Janssen and Sanof. But perhaps its most exciting recent partnership is with Merck (MRK) to start developing an oncology diagnostic.

Revenue has risen 31% year-over-year and 64% over two-years.

The average estimate for next quarter's revenue of $541.8 million is above last quarter's $538.6 million.

Technicals   |   Support: 213.98   |   Resistance: 220.75    image

Golden Cross Alert: The 50-day MA is now above the 200-day MA.
Swing Golden Cross Alert: The short-term 10 day MA is now above the 50 day MA.

ILMN has a four bull (high rated) technical rating because the stock is trading above its 10-, 50-and 200- day moving averages and even though the stock is down on the day, the 10-day MA is above the 50-day MA (also called a "swing golden cross").

Here are the consensus estimates for next quarter. Note that last quarter's actual result is included at the far right.
Earnings Date EPS Revenue (Mean) Revenue (Median) Last Quarter (Actual)
2015-07-22 $0.77 $541.8 M $540.5 M $538.6 M Provided by ZACKS

Let's look at the core elements that drive the company's fundamental rating.

Fundamentals Rating Summary

Revenue (TTM US$ Millions) 1,979 1,511 1,207 image

Operating Margin (QTR) 1.449 1.28 1.27 image

Net Income (TTM US$ Millions) 430 208 102 image

Levered Free Cash Flow (TTM US$ Millions) 423 205 261 RISING

Research and Development (US$ Millions) 92 77 61 RISING

Research and Development Expense/Revenue 0.170 0.183 0.184 FALLING


Stock Returns and Chart

ILMN is up +20.7% over the last three months and up +19.2% over the last six months. The stock price is up +20.4% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom). image
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Now let's examine the visualizations of the critical financial measures.


Revenue (TTM US$ Millions) 1,9791,5111,207image

Revenue (TTM) is trending higher meaning that it has increased for at least five consecutive quarters (in this case twenty consecutive quarters). ILMN revenue is up over 30% y-o-y and 65% over two-years. It continues to make all-time highs and shows no signs of slowing... at all.

What do all these numbers mean?
ILMN's fundamental rating benefited these results:
1. The one-year change was positive.
2. The one-year change was greater than +20% (an extra boost to the rating).
3. The two-year change was positive.
Finally, the up trend (consecutive quarters) in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below.

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Operating Revenues/Operating Expense 1.4491.281.27image

Operating revenue over operating expense simply shows us how much revenue (in dollars) is generated for every dollar of expense. The ratio must be (at a minimum) above 1.0 in order for a company to turn an operating profit. For the latest quarter ILMN showed a ratio of 1.45. For context, Facebook is at 1.40. Not only are operating margins rising, but they are trending higher (a "trend" is triggered when a metric rises (or falls0 for five or more consecutive quarters). In particular, trending operating margins are extremely rare. And if you wanted to get more bullish, assets are also absolutely exploding (see chart below).

What do all these numbers mean?
A year ago Operating Revenues/Operating Expense was 1.28. In the last year we can see operating margins are increasing and are also currently greater than 1.0 (the critical level).

ILMN's fundamental rating was affected from the operating margin numbers in two ways:
1. The current value is above 1.0 (the firm generates an operating profit).
2. The one-year change was positive (raises the rating).
Finally, the up trend (consecutive quarters) in operating margin benefited the fundamental rating.

Let's look at Operating Revenues/Operating Expense in the chart below with the total assets in the orange line.

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Net Income (TTM US$ Millions) 430208102image

With revenue hitting all-time highs and operating margins rising, it's essentially a tautology that earnings will be hitting new highs, and they are. Net Income (after tax profit) over the trailing twelve months (TTM) for ILMN is trending higher (six consecutive quarters of growth) and now stands at an all-time high of $430 million. That number is a 107% rise year-over-year.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars.

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Normally we go to free cash flow, but let's try to avoid redundancy. Suffice it to say, free cash flow is rising and very positive.

Research and Development (US$ Millions) 927761RISING

ILMN has an enormous business in front of it and the company is investing in R&D like it knows it. Research and Development (US$ Millions) in the most recent quarter for ILMN was $92 million, up 19% from last year's value of $77 million. Further, we can see that R&D is up over 50% in the last two-years.

In our final time series chart we plot Research and Development (US$ Millions) in the blue bars.

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In the age of the biotech boom, where companies like Gilead, Biogen, Alexion, Jazz and so many others are changing the world with cures for horrible diseases and afflictions, ILMN stands in the center. If the biotech boom today is the the rail road boom during the industrial revolution and the biotechs are the rail road companies, then ILMN is the steel that lines the rail road tracks.

Revenue, earnings and R&D are at all-time highs. Operating margins are trending higher, all while the company makes deeper inroads to dominating its market with long-term powerful strategic partnerships. The stock is at an all-time high because the company is operating at an all-time high. Illumina is, in many ways, a marvel.