What's in the Cards for Illumina (ILMN) in Q4 Earnings?
Illumina ILMN is scheduled to report fourth-quarter 2022 results on Feb 7, after market close.
In the last reported quarter, the company’s adjusted earnings per share of 34 cents exceeded the Zacks Consensus Estimate by 17.2%. Earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 20.18%.
Let’s take a look at how things have shaped up prior to this announcement.
Factors at Play
The ongoing inflationary pressure, a strengthening U.S. dollar and supply chain issues are expected to have adversely impacted Illumina’s fourth-quarter performance. Delays in instruments and consumables purchases, primarily due to the negative foreign exchange impact and consumables inventory deleveraging might also have dented the company’s performance through the fourth quarter.
In the last reported quarter, Illumina incurred a huge goodwill impairment charge related to the GRAIL segment, primarily due to the negative impact of current capital market conditions and higher discount rates. This included a stand-alone risk premium on the fair-value calculation of the GRAIL segment, thereby exerting pressure on the bottom line. Going by the recent regulatory updates so far on GRAIL, we expect Illumina to have once again incurred significant legal expenses that might have marred bottom line-growth in the fourth quarter.
Customer lab expansion delays and inventory and capital management and a decline in COVID surveillance revenues are expected to have impeded Illumina’s performance throughout the fourth quarter.
Illumina, Inc. Price and EPS Surprise
Illumina, Inc. price-eps-surprise | Illumina, Inc. Quote
On a positive note, we expect growth within Core Illumina on the back of growing demand from genetic testing, oncology testing and cancer research customers similar to last reported quarter. The company had a strong customer response to the NovaSeq X Series launch at the Illumina Genomics Forum, where the company reached more than 12,000 viewers in the innovation road map sessions. Customer traction for NovaSeq X exceeded Illumina’s expectation. We believe these developments to have benefited company’s revenue in the fourth quarter.
Illumina is broadening genomic opportunities across disease states. In October 2022, the company entered into a partnership with General Screen to help countries impacted by tuberculosis to effectively detect and combat multidrug resistant strains. In the same month, Illumina entered into a strategic research collaboration with AstraZeneca to drive drug target discovery by combining their strengths in artificial intelligence (AI)-based genome interpretation and genomic analysis techniques along with industry expertise. We expect these partnerships to have contributed significantly to Illumina’s revenue growth in Q4.
In oncology, GRAIL continued to make good progress in Q3, delivering clinical results and signing up a broad range of customers across the health care ecosystem, including health systems and life insurance providers. GRAIL announced a first-of-its-kind partnership with Karim Health, the first digital health company, connecting employers and employees to centers of excellence through a value-based care platform. We expect contributions from the GRAIL acquisition to have continued in the to-be reported quarter, adding to top line.
The Zacks Consensus Estimate for the company’s fourth-quarter 2022 revenues is pegged at $1.05 billion, suggesting a 12% fall over the year-ago reported figure.
The Zacks Consensus Estimate for the company’s fourth-quarter 2022 earnings per share of 26 cents indicates an 65.3% slash from the year-ago reported figure.
What Our Model Suggests
Per our proven model, a stock with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP has a higher chance of beating estimates. However, this is not the case here, as you can see:
Earnings ESP: The company has an Earnings ESP of -115.69%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank #5 (Strong Sell).
Stocks Worth a Look
Here are some medical stocks worth considering as these have the right combination of elements to post an earnings beat this quarter.
Cardinal Health CAH has an Earnings ESP of +5.75% and a Zacks Rank of #2. The company will release fourth-quarter 2022 results on Feb 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Cardinal Health has a long-term expected earnings growth rate of 11.7%. Cardinal Health’s earnings yield of 6.87% compares favorably with the industry’s 4.34%.
McKesson Corporation MCK has an Earnings ESP of +0.84% and a Zacks Rank of #2. McKesson is scheduled to release third-quarter fiscal 2023 results on Feb 1.
MCK’s long-term historical earnings growth rate is estimated at 10.1%. MCK’s earnings yield of 6.49% compares favorably with the industry’s 4.34%.
Laboratory Corporation of America Holdings or LabCorp LH currently has an Earnings ESP of +2.67% and a Zacks Rank of #2. LabCorp is expected to release fourth-quarter 2022 results on Feb 16.
LabCorp’s long-term historical earnings growth rate is estimated at 26.1%. LabCorp’s earnings yield of 7.02% compares favorably with the industry’s 4.34%.
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