Illumina Inc.: Going Places with Human Genome Sequencing

Illumina, Inc. (NASDAQ:ILMN) caught my attention today after analysts at UBS initiated a new $240 price target on the stock. My last coverage of Illumina was in an October 2014 post in which I recommended buying ILMN call options. In that post, titled, “Kneejerk for Profits on Impressive Q3 ILMN Results”, I gave the stock a $190 price target by January 2015.

Interestingly, shares of Illumina did not fail to deliver impressive results on that October coverage. As at January 28, 2015, the shares of Illumina have climbed 18.22% to make a new 52-week high of $213.33 from a trading price of $180.45 on October 21. Hence, the initiating of $240 price has encouraged me to reexamine the fundamentals of the stock to seek out the possibilities for making profit with ILMN call options.

A Little Background

Illumina with its market capitalization of $27.74B is a developer and manufacturer of life science tools and integrated systems for the analysis of genetic variation and function. In simple English, Illumina is involved in human genome sequencing and molecular diagnostic services.

Illumina is currently hot in the news after the announcement of collaboration with Germany’s Merck Serono for the creation of universal test systems to be used in the clinical trials of targeted cancer therapies in the hopes of developing a better product for precision medicine.

Impressive Q4 Results

The shares of Illumina have had an interesting rally in recent weeks, all thanks to the impressive fourth quarter (Q4 2014) earnings that the company posted. In fact, Q4 2014 marks the thirteenth consecutive quarter of growth in revenue

Illumina posted adjusted earnings of $0.87 per share to beat the consensus estimate of $0.79 per share and to mark an unbelievable 93.3% from the same quarter last year

The company reported revenue of $512.4M to beat the consensus estimate of $504M and to beat the revenue from the same quarter last year by 32.3%

Going forward, the company expects year-over-year revenue growth of 20% and adjusted earnings per share in the range of $3.12–$3.18

Increase in Analysts’ Optimism

Fueled by the impressive fourth quarter results that Illumina posted, some analysts have stared upgrading their ratings on the stocks while others have been raising their price targets. For instance, the Zacks consensus estimate Illumina has increased by 1.9% to $3.21 in 2015 and the consensus estimate of 2016 has increased by 1.6% to $3.89.

In addition, analysts at Wedbush have increased their price target on the stock from $200 to $230, and they maintained their “outperform” rating on the stock. Analysts at Maxim Group Research raised their price target on the stock from $236 to $255, and they maintained their “buy” rating on the stock.

How to Trade ILMN Options

I am optimistic about the prospects of Illumina going forward and I think you’ll do well to buy ILMN call options. For one, the stock trades below its 50-day moving average of $193.99 to suggest an impressive upside potential ahead.

The upside potential ahead is confirmed by the RSI of 46.12, which suggests that the stock is nearing the end of the current pullback. I recommend buying the ILMN Jun 2015 195.000 put (ILMN150619P00195000) at an asking price of $15.

— Daily Option Alerts

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