Illumina plunges after Q1 revenue outlook trails estimates

Shares of Illumina (ILMN), which provides solutions for genetic analysis, are sinking after the company announced preliminary first quarter revenue that fell short of analysts' consensus estimates. Adding to the weakness was decidedly negative analyst commentary.

WEAK GUIDANCE: Monday after the close, Illumina announced estimated Q1 revenue of approximately $572M, a 6% increase compared to $539M in 1Q15 and 7% growth on a constant currency basis, trailing analysts' consensus estimates of $596.33M. Jay Flatley, Illumina's chairman and Chief Executive Officer, said that the quarterly results were short of expectations primarily due to lower than expected sales of HiSeq 2500, 3000 and 4000 instruments. Despite the slow start in Q1, Flatley said the company expects that its Americas and Asia Pacific regions will meet expectations for the full year, but that Europe will underperform. As a result, Flatley said Illumina now expects approximately 12% revenue growth for fiscal year 2016, and said that given the disappointing outlook in Europe, "We have made management changes in the region and plan to implement a program of actions to achieve our goal of delivering the robust growth we believe the market can support."

ANALYST REACTION: Analyst research was decidedly negative this morning. Piper Jaffray analyst William Quirk lowered his price target for Illumina to $166, and told investors in a research note that the surprise miss and lasting Europe weakness will pressure the shares in the near-term. The analyst continues to like Illumina for the longer term and kept an Overweight rating on the name. Cantor Fitzgerald analyst Bryan Brokmeier downgraded Illumina to Hold from Buy saying investors should move to the sidelines until visibility improves. Growth of 6% year-over-year in Q1 is the company's worst quarterly growth rate since Q2 of 2012, Brokmeier noted, and cut his price target for the shares to $165 from $225. Leerink analyst Dan Leonard lowered his price target for Illumina to $165 from $175. The analyst said the company needs to "meaningfully exceed" revenue expectations for the stock to work, but he does not see a driver for these types of revenue beats, with the reported Q1 miss supporting this view. Leonard expects an emerging debate over Illumina's ability to forestall centralization and continue to segment the market at the high end of next generation sequencing. The analyst reiterated a Market Perform rating on the shares.

PRICE ACTION: In late morning trading, Illumina fell $43.63, or about 24.5%, to $134.49 on more than three times its average daily trading volume. Including today's pullback, the shares have lost approximately 29.5% over the past 12 months.