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Wells Fargo Downgrades Illumina to Market Perform

NEW YORK (GenomeWeb) – Wells Fargo downgraded Illumina to Market Perform from Outperform today, saying the probability that Illumina will announce a product launch big enough to reaccelerate revenue growth in 2016 is low.

The company is scheduled to present at the JP Morgan Healthcare Conference on Jan. 11, and has a history of announcing major new products at such events, wrote Wells Fargo senior analyst Tim Evans in his note. But this year, the most likely scenario is that Illumina will focus on evolutionary innovations for the clinical market, a move that presents challenges that could slow revenue growth.

"We think clinical markets will be the main source of growth in 2016, which could pressure the stock's multiple given regulatory and reimbursement challenges in that market," Evans wrote. "We also note that ILMN faces competition in the clinical market, unlike the high-throughput market where ILMN maintains a monopoly. In short, the shift to clinical is most likely to result in decelerating revenue and EPS growth in 2016."

Illumina's strength has always been its ability to innovate, but innovation is hampered by regulation in the clinical markets, Evans added. The firm is also facing competitions from companies like Thermo Fisher Scientific and Qiagen in that space.

"Putting these factors together, we think the most likely scenario is further revenue growth deceleration in 2016 to 16 percent from 18 percent in 2015, with limited margin opportunities, meaning EPS likely grows slower than revenue (we model 12 percent EPS growth in 2016, down from 21 percent in 2015)," Evans wrote.

Illumina's shares were down 3 percent at $172.18 in mid-morning trading on the Nasdaq.

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