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Investment Banks Downgrade Illumina Following Disappointing Q3 Preannouncement

NEW YORK (GenomeWeb) – BTIG and Mizuho Securities downgraded shares of Illumina, while other investment banks cut their revenue estimates and price targets for the company's stock, following Illumina's preannouncement on Monday that it has lowered its revenue forecasts for the third and fourth quarters, as well as full-year 2015. 

BTIG lowered its rating on Illumina's stock to a Neutral rating from an earlier Outperform rating, while Mizuho downgraded the firm's shares to a Neutral rating from a Buy rating. BTIG also cut its full-year 2016 EPS estimate for Illumina to $3.83 from $4.19, while Mizuho dropped its price target on Illumina's stock to $150 from $250. 

The action was prompted by Illumina's preannouncement that its third-quarter revenues are expected to grow to $550 million, which would be a 14 percent increase year over year but short of analysts' average estimate of $568.6 million. The company also said that Q4 revenues are expected to be $570 million, which would be short of the consensus Wall Street estimate of $602.8 million. Full-year 2015 revenues are anticipated to reach $2.19 billion, which would be an 18 percent uptick from $1.86 billion in 2014, but below analysts' average estimate of $2.25 billion.

BTIG analyst Dane Leon said that downgrading a company's stock after a preannouncement is generally "the wrong move," and he remains positive about Illumina's long-term outlook, but his revised 2016 forecasts "are not currently supportive of a high-growth multiple for the stock." He added that it may take at least two quarters for the firm's management to rebuild credibility following Monday's preannouncement, after its officials mounted "a staunch defense" of its full-year 2015 outlook on its Q2 earnings conference call. The firm's outlook then also fell below consensus Wall Street estimates. 

While Illumina placed much of the brunt of the lowered Q3 and Q4 revenue estimates on weaker desktop sequencing instrument sales, Eric Criscuolo at Mizuho said that a more likely culprit was geographic weakness, particularly in Europe and in Asia-Pacific, and noted that Illumina is replacing its leadership in Japan in hopes of improving its sluggish Asian business. 

Criscuolo further said that Illumina may be well on its way to meeting its 2016 revenue target of $2.4 billion, but warned that though it doesn't necessarily mean that the company's 2016 estimates will be "severely lower" than the consensus Wall Street view, "downside risk has increased and management may be even more conservative on their 2016 outlook in January." 

Other investment banks also expressed caution about Illumina moving forward and cut their estimates and price targets, although they maintained their ratings for the company's shares. 

Goldman Sachs slashed its 12-month price target on Illumina's shares to $137 from $230. It also reduced its 2015 revenue estimate to $2.20 billion from $2.25 billion and its 2016 revenue estimate to $2.47 billion from $2.61 billion. 

The bank lowered its 2015 EPS estimate for Illumina for 2015 to $3.34 from $3.43 and reduced its 2016 EPS estimate to $3.68 from $3.95. 

Also, Janney lowered its fair value estimate for Illumina's stock to $154 and revised its Q3 revenue estimate for the company to $550 million from $585 million. The bank changed its Q4 revenue estimate to $570 million from $615 million and its full-year 2016 revenue estimate to $2.54 billion from $2.70 billion. 

It also lowered its EPS estimate for Illumina for Q3 to $.75 from $.83; its Q4 EPS estimate to $.79 from $.89; and its 2016 EPS estimate to $3.65 from $4.05. 

Additionally, Piper Jaffray reduced its price target on Illumina to $220 from $230; Wells Fargo cut its valuation range on the firm's shares to between $170 and $180 from $225 to $230; and Cowen & Co. lowered its price target to $170 from $220.