Shares of Illumina (ticker: ILMN) took a hit on Friday as the gene-sequencing company revised its financial forecasts. As a result, analysts have adjusted their price targets accordingly.
In premarket trading on Friday, Illumina’s stock witnessed an 11% decline to $94.69. Year-to-date, the stock has already experienced a substantial drop of 47%.
After the market closed on Thursday, Illumina announced that it now expects a decrease in revenue for fiscal 2023, estimating a decline between 2% and 3% compared to the previous year. Initially, the company had anticipated a 1% growth in revenue. Additionally, the earnings outlook for 2023 has been downgraded to a range of 50 cents to 70 cents per share. Previously, Illumina had forecasted a profit of 75 cents to 90 cents per share.
Third Quarter Earnings
Illumina reported third-quarter earnings of 33 cents per share on revenue of $1.12 billion. This exceeded analysts’ expectations surveyed by FactSet, who had estimated earnings at 14 cents per share from revenue of $1.13 billion.
During a call with analysts and investors to discuss the results, Chief Executive Jacob Thaysen acknowledged the challenging macroeconomic environment for the industry and Illumina’s customers. He highlighted that customer purchasing decisions are becoming more cautious and constrained.
It remains to be seen how Illumina will navigate these headwinds and adapt to changing market dynamics as they move forward.
Illumina Faces Goodwill and Intangible Asset Impairment
Illumina, a prominent biotechnology company, has recently reported significant impairments to its goodwill and intangible assets. In relation to its subsidiary, Grail – a cancer-test developer, Illumina recognized a write-down of $712 million in goodwill and $109 million in intangible asset impairment. This development comes after Illumina received an order from the European Commission to divest Grail, imposing various regulatory challenges on the company.
While Illumina maintains that the European Commission lacks jurisdiction over this acquisition and has challenged the decision at the European Court of Justice, the company has also initiated the divestiture process. The future implications of this divestiture remain uncertain.
Analysts Downgrade Illumina’s Stock
Following these developments, analysts have reassessed their outlook on Illumina’s stock. Canaccord Genuity analyst Kyle Mikson downgraded the shares of Illumina to Hold from Buy. Additionally, Mikson slashed his price target for the stock to $120 from $210. Mikson attributes this downgrade to both macro headwinds and what he perceives as subpar execution by the company in recent quarters. He believes that these issues will continue to impact the stock throughout 2024.
On the other hand, RBC Capital Markets analyst Conor McNamara maintained his Outperform rating for Illumina’s stock but lowered his price target to $260 from $318. McNamara assumes that the proceeds from the sale of Grail will cover the approximately $500 million European Commission fine and any capital requirements necessary to sustain Grail’s operations during the transition period.
In conclusion, Illumina’s recent challenges with its Grail acquisition have led to substantial impairments on its balance sheet. The company’s ongoing divestiture process and the subsequent regulatory implications will undoubtedly shape its future trajectory. As analysts reassess their evaluations, Illumina must address its execution issues to regain investor confidence and overcome the obstacles ahead.