Illumina

Illumina is facing many issues, including patent expirations, regulatory problems both in Europe and the US, a failed deal and increasing competition. Doesn't sound that attractive... however, the mess will get cleaned up over the next 12 months and Illumina will return to its core business, which is attractive, and just in front of a new product cycle.

In our upside scenario we estimate that the core ILMN could generate EPS of ~$10 sometime in 2026 versus consensus estimates of $5 in 2025.

• The clean up: Regulators have ordered Illumina to divest Grail. Grail is a non profitable business. (Revenue $90-$110m, operating Loss: ~$670m.),

• We expect Grail to be divested in 2023/24, as we sense a consensus among investors and probably the management that it got carried away in 2021. Involvement of an activist investor (Icahn) helps to hasten the divestment process.

• Which will leave Core Illumina:

  • The key bet in ILMN is an instrument upgrade cycle and high elasticity of demand, which allows ILMN to grow revenue mid-teens in 2024/2025 with 25-28% operating margins.

Potential Upside: $350 (+64%)

Sensible Downside: $140(-35%)

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