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Leader in Genomic Sequencing Illuminates the Way

Continued technology advancements and market expansion support Illumina's narrow moat.

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As the current leader in genomic sequencing,  Illumina (ILMN) faces an impressive growth opportunity as the emergence of this technology creates new applications while also potentially disrupting many existing genetic research and clinical diagnostic markets. Accelerating demand for Illumina's products combined with operating leverage potential should sustain high earnings growth.

Although Illumina management's preview of 20% revenue growth and adjusted earnings per share of $3.12-$3.18 for 2015 falls modestly below our expectations, we don't anticipate any change to our fair value estimate at this time. Management has a history of kicking off the new fiscal year with a conservative tone, and we think new product announcements, including the next evolution of HiSeq instruments, along with ongoing strong equipment and consumables sales among all instrument product lines should enable Illumina to outpace 20% growth during 2015. Additionally, Illumina will begin selling the HiSeq X in a smaller five-instrument bundle, which should continue to expand the market in this highest-throughput category. Despite management's somewhat subdued growth outlook, the company expects gross margin near 73% in 2015, which is considerably healthier than our prediction. Although the evolution of the genome sequencing market remains uncertain, especially in the clinical prenatal testing and oncology fields, we think Illumina's technology advancements continue to support its narrow economic moat.

Michael Waterhouse does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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