Illumina (ILMN): Defended following a negative pre-announcement

From Notable Calls:

We have several firms out defending Illumina (NASDAQ: ILMN) after the co pre-announced 2Q results after the close and expecting revenues to be ~$161 MM, below prior guidance range of $168-173 MM. The miss was largely attributed to weakness in the array business: 1) Slowdown in GWAS as researchers await new content; 2) Softness in Foundation funding; & 3) Order delays (sequencers) as researchers are uncertain about grant money.

- Deutsche Bank reiterates Buy noting ST volatility does not reflect any change in fundamentals, which remain strong. ILMN est. that $10-15 MM of rev was impacted by delays in 1H’09, with some volatility expected in 3Q as well; however, stimulus benefit should make for a strong 4Q’09 (sequencing). Also, data from 1000 Genomes \should reinvigorate array growth in mid FY10 as rare variant content will drive ‘rich’ GWAS studies. Price tgt is lowered to $40 from $47.

- JP Morgan notes that despite the uncertainty over quarterly results, however, they maintain their long-term favorable view given the size of the genetic analysis market and strong competitive position for ILMN, which will report F2Q results on 7/21 @ 5pm ET. Maintains Overweight rating.

Read-through for other life science companies . . . buy LIFE. JP Morgan does not see direct read-through for other companies in their life science tools universe, other than AFFX, which also has a GWAS business. While we expect a number of companies, incl. LIFE to be impacted by the preannouncement, they would use any pullback as a buying opportunity, in particular for LIFE, which doesn’t have a microarray business and has little near-term exposure to the GWAS slowdown. Recent commentary from management (see transcript of their call with CEO Greg Lucier last month) has also confirmed that the company has not seen a recent slowdown in academic demand.

- Morgan Stanley: 2010+ and Fundamental Story Intact, Maintaining Overweight … They do not believe the Illumina story is broken, with the 2010 stimulus thesis and core business fundamentals largely intact given: 1) a meaningful multi-year stimulus benefit with upside to current consensus expectations (stimulus contribution in 2010 likely conservative); 2) an intact sequencing product cycle with a longer tail than many believe; and 3) the array business is struggling through a demand gap rather than a permanent fundamental negative inflection. However, trends in genome wide association studies remain the primary risk to the stock.

Maintains Overweight, lowering tgt to $38 from $42.

Notablecalls: I think this one has a fair chance of bouncing today. $32-$33 range is my target for this one.

For more calls go to http://notablecalls.blogspot.com/

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