Illumina Inc.: Kneejerk for Profits on Impressive Q3 Results

I last wrote about trading the options of Illumina, Inc. (NASDAQ:ILMN) in January, in a post in which I talked about the company’s foray into human genome sequencing. When I wrote that post, shares of Illumina were trading around $143 per share; yet, my confidence in the stock’s bullishness encouraged me to give Illumina $175 price target by June. Interestingly, the stock made a $185 high in February and we quickly exited the trade before the pullback started.

Today, I present you ILMN options as I observe another round of bullish momentum gathering on the stock. If you are new to the ILMN party, Illumina Inc. with its market capitalization of $25.09B is a developer and manufacturer of life science tools and integrated systems for the analysis of genetic variation and function.

Heading Back to New Highs

As at 12:06 PM EDT today, shares of Illumina have gained an impressive 9.50% to trade around $180.07 per share. The chart below shows how shares of Illumina have traded in the last year and my annotations show how the stock is heading to new highs.

ILMN calls

You will observe that that the stock has been trading predominantly northbound with a few pullbacks on the road. You will also observe that the stock has trendline support at $90 in November 2013, at $130 in April and at $160 in August. The $185 resistance May and in June through August is visible on the chart.

However, I strongly believe that shares of Illumina are heading up to breakout above that $185 resistance on the strength of the current bullish momentum. For one, the stock has broken down below the last $160 to $150 before a kneejerk action sent the stock back up. The quality of Illumina’s third quarter earnings was responsible for the kneejerk uptrend and the RSI of 64.81 suggests that the buying side has more influence on shares of Illumina than the sell side.

Strong Third Quarter Earning Support the Bullish Case

Illumina reported impressive third quarter (Q3 2014) results yesterday and to say that investors were pleased with the result is an understatement as the gains in share price shows. Highlights of the third quarter earnings are presented below.

  • Revenue of $481 million, a 35% increase compared to $357 million in the third quarter of 2013
  • GAAP net income for the quarter of $93 million, or $0.63 per diluted share, compared to $31 million, or $0.22 per diluted share, for the third quarter of 2013
  • Non-GAAP net income for the quarter of $114 million, or $0.77 per diluted share, compared to $63 million, or $0.45 per diluted share, for the third quarter of 2013 (see the table entitled “Itemized Reconciliation Between GAAP and Non-GAAP Net Income” for a reconciliation of these GAAP and non-GAAP financial measures)
  • Cash flow from operations of $146 million and free cash flow of $117 million for the quarter
  • Illumina increased its full year 2014 guidance to revenue growth of approximately 30% year-over-year and non-GAAP earnings per fully diluted share of $2.63 to $2.65.

How to Trade ILMN Options

I am bullish on Illumina and I have a $200 price target on the stock in the next 6 months. In the meantime, I will buy the ILMN Jan 2015 180.000 call (ILMN150117C00180000) at an asking price of $13.65. Set stop loss at $13.10, plan to exit or raise stop $15.20 depending on how the stock trades after getting back to the 52-week high.

— Daily Option Alerts

You May Also Like

About the Author: Daily Option Alerts