Illumina Q3 numbers - strong beat

Illumina is the latest addition to our recommended stocks in the US. In case you forgot what they are all about, here is a refresher. Illumina develops, manufactures and markets integrated systems for the analysis of genetic variation and biological function.



Last night the company released third-quarter results and I was first to "shotgun" writing about them. Exciting times!

This is a big company already. It has a market cap of $46bn. That would make the company bigger than Richemont, Anglo, Firstrand and Sasol. In fact, the only companies larger than that on our exchange are Glencore, Naspers, British American Tobacco and AB InBev.

Revenues for the quarter came in at $853 million, up 20% from this period last year. $470m of that came from sequencing consumable revenue (up 23%). This indicates a planned shift in the business from a focus on capital equipment to a service based model.

This resulted in net income of $227m or $1.52 a share. That was a 37% increase from the net income made last year. The company has amazing gross margins of 70% (nice to be the first mover) and made $292 million in free cash flow for the quarter. They currently sit on $3.4 billion in cash which provides some good acquisition ammo in a fast moving sector.

The expectations for the full year are for around $5.75 a share. This should be fairly accurate as they have already seen three quarters. The stock trades at 55 times this year's earnings, which is of course expensive. Having said that, growth is fast, margins are great and the company has 0 net debt. The company is also in the middle of a large share buyback program.

China continues to be a big driver. They are seeing 40% growth from that region. Another very exciting area for the company is NIPT (Non-invasive prenatal testing) which is the part of their business that tests pregnant women and their unborn babies. They have a partnership with Harvard which is trying to expand insurance coverage for these tests. This falls within the amazing area of preventative healthcare, which is far better and cheaper than dealing with an existing defect. I am sure the insurance providers will catch on to this fast.

The consumer space is also very exciting. There are now more than 100 companies in the consumer genomics space and 12 million consumer samples around the globe. Many large-scale sequencing initiatives are creating big demand.

The numbers were solid and beat expectations. We continue to like this space and feel that healthcare technology is underappreciated, misunderstood and undervalued. If you do not yet own this stock, send some funds and we will buy you a few.