On Monday, shares of Illumina Inc. (NASDAQ:) added 4% after optimistic statements from RBC Capital Markets.
The financial institution hosted Illumina CFO Ankur Dhingra and VP of Investor Relations Sally Schwartz, marking Dhingra’s first investor conference since his appointment in April.
Discussions at the conference demonstrated confidence in Illumina’s revenue growth and margin improvement potential, particularly highlighting Dhingra’s previous collaboration with CEO Jacob Theisen at Agilent Technologies (NYSE:).
During the conference, Dhingra highlighted the decision to “defer” first-quarter fiscal 2024 earnings rather than use them to raise forecasts, citing macroeconomic uncertainty.
However, he noted that customer order mix and recent pricing initiatives could lead to financial results that exceed expectations for the remainder of the year. RBC expressed continued confidence in Illumina’s ability to beat forecasts and potentially adjust forecasts upward throughout 2024.
Illumina’s long-term growth and profitability prospects were also discussed, with the outlook being positive despite the decision to delay detailed forecasts until a virtual Analyst Day scheduled for the fall.
The event is expected to provide further insight into the company’s strategy following the separation from GRAIL and the introduction of new senior management since its last review date in October 2022.
RBC expects Analyst Day to reinforce belief that Illumina can achieve growth that outperforms the life sciences instruments (LST) market average—potential that is not yet reflected in current share prices.
The conversation also touched on the return on investment in research and development (R&D), which was about 20% of sales compared to the 7-9% typically seen at core LST companies.
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Dhingra expressed hope for the R&D group’s projects and suggested that the company may be able to reduce R&D investment as a percentage of sales while continuing to drive innovation and future growth opportunities.
With respect to the sale of GRAIL, Illumina has confirmed that the highest cash requirement, including the penalty and capital obligations to GRAIL, is feasible and not due until 2025 or 2026.
That assurance, as well as the expected focus on core business fundamentals following the sale, prompted RBC to maintain an Outperform rating on Illumina shares with a $253 price target.
The broker believes that if Illumina can restore revenue growth and earnings to historical levels, the share price could rise significantly through multiple expansion.
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