Illumina shares gain 4% on upbeat RBC comments

On Monday, shares of Illumina Inc. (NASDAQ:) added 4% following optimistic remarks from RBC Capital Markets.

The financial institution hosted Illumina’s CFO Ankur Dhingra and VP of Investor Relations Salli Schwartz, marking Dhingra’s first investor conference since his appointment in April.

Discussions at the conference revealed confidence in Illumina’s revenue growth and margin improvement potential, particularly highlighting Dhingra’s prior collaboration with CEO Jacob Thaysen at Agilent Technologies (NYSE:).

During the conference, Dhingra emphasized the decision to ‘bank’ the earnings beat from the first quarter of fiscal year 2024 rather than using it to raise guidance, citing macroeconomic uncertainties.

However, he noted that customer ordering patterns and recent pricing initiatives could lead to financial performance that exceeds expectations in the remainder of the year. RBC expressed continued confidence in Illumina’s ability to surpass forecasts and potentially adjust guidance upwards throughout 2024.

Illumina’s long-term growth and margin prospects were also discussed, with a positive outlook despite a decision to defer detailed projections until a virtual Analyst Day planned for the fall.

This event is expected to provide further insights into the company’s strategy following the separation from GRAIL and the introduction of a new C-suite since the last analyst day in October 2022.

RBC anticipates that the Analyst Day will reinforce the belief that Illumina can achieve growth surpassing the life sciences tools (LST) market average—a potential not yet reflected in the stock’s current pricing.

The conversation also touched on the return on investment from Illumina’s research and development (R&D) spending, which has been around 20% of sales compared to the 7-9% typically seen in core LST companies.

Dhingra conveyed his anticipation for the R&D team’s projects and suggested that the company might be able to reduce R&D investment as a percentage of sales while still driving innovation and future growth opportunities.

Regarding the GRAIL divestiture, Illumina confirmed that the highest cash requirement, including a fine and capital commitment to GRAIL, is manageable and not due until 2025 or 2026.

This assurance, along with the expected focus on core business fundamentals post-divestiture, led RBC to maintain an ‘Outperform’ rating on Illumina’s stock with a $253 price target.

The broker believes that if Illumina can restore its revenue growth and margins to historical levels, there could be significant upside to the share price through multiple expansion.

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