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Illumina stock (NASDAQ: ILMN) saw a 6% rise on Wednesday, July 10, faring better than its peer — Mettler-Toledo stock (NYSE:MTD) – up 1%. The rise in ILMN stock can primarily be attributed to the company’s acquisition of Fluent Biosciences to expand its single-cell analysis and multiomics offerings. The acquisition was funded with the company’s cash in hand. This move comes after the company completed the planned spin-off of Grail late last month. Illumina acquired Grail in 2021 despite regulatory concerns and without the EU antitrust approval. The Grail spin-off followed by the Fluent Biosciences acquisitions is a positive for the company. Note that because of its Grail acquisition, ILMN stock has suffered a sharp decline of 70% from levels of $370 in early January 2021 to around $115 now, vs. an increase of about 50% for the S&P 500 over this roughly three-year period.

Notably, ILMN stock has underperformed the broader market in each of the last three years. Returns for the stock were 3% in 2021, -47% in 2022, and -31% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that ILMN underperformed the S&P in 2021, 2022, and 2023. In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including UNH and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ILMN face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months — or will it see a recovery? From a valuation perspective, we think ILMN stock will likely see higher levels. The $142 average of analysts price estimate reflects around 25% upside from the current levels of around $115. At its current levels, ILMN stock is trading at just 4x trailing revenues, versus the 8x average over the last three years. With the Grail story now behind us, an upward revision to Illumina’s valuation multiple seems likely.

Illumina’s revenue rose from $3.2 billion in 2020 to $4.5 billion in 2023, driven by the booming demand for gene sequencing. The company’s cancer screening and population genomics testing have also bolstered its sales growth. Illumina has a recurring revenue model from consumables and services, accounting for 84% of the company’s total sales in 2023. For Illumina, the Grail acquisition has hurt its earnings meaningfully in recent years. It recorded a goodwill and impairment charge of $4.7 billion in 2022 and $821 million in 2023 associated with the Grail acquisition. But now that the company has spun-off this unit, it can look forward to robust earnings growth. For perspective, Illumina is expected to see over 5x bottom-line growth to $4.72 in 2025, compared to $0.86 in 2023. With the Fluent Biosciences acquisition, Illumina is poised to gain market share in single-cell analysis, given that Fluent’s PIPseq single-cell technology costs around 50% less than its peer – 10x Genomics.

While ILMN stock looks like it can see higher levels, it is helpful to see how Illumina’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 7/11/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.