“From July 1, 2000 to December 16, 2019, Illumina stock returned roughly 1,573% versus the S&P 500 return of roughly 119% or 13x the return of the market.
The societal impact of ILMN’s technology contribution to genetic testing has been enormous: The price of sequencing a single genome has dropped from the $3 billion spent by the original Human Genome Project 13 years ago to a few hundred dollars today. Now the real work saving lives can begin.”
COMPANY PROFILE
Illumina is the 800lb gorilla in the genetic sequencing hardware market. ILMN sells its testing equipment to direct-to-consumer (DTC) personal genomics companies like Invitae, Ancestry & 23andMe as well as those healthcare companies in a clinical format. The genomics revolution is in its infancy. First you have to map the human genome, then you can change lives, prevent and treat disease and offer consumers options before the problem exists. We are talking about a massive, worldwide secular theme and it will only end when humans stop being born. Illumina sells very expensive testing equipment that when used, requires replacement of the consumables. They are like the Soda Stream machine that everyones addicted to that also sells the cartridges offering significant recurring revenue. The difference is we aren’t talking about beverages, we are talking about disease prevention and treatment until the end of mankind. That’s kind-of-a-big deal.
Recent Earnings
“This was a solid quarter for Illumina, with product revenue in‐line with expectations, and a stronger than expected revenue contribution associated with partner collaborations to develop distributable clinical IVDs for Illumina sequencers
Extended the merger agreement with Pacific Biosciences to December 31, 2019 with an option to extend the deadline to March 31, 2020
Repurchased $199 million of outstanding common stock in the third quarter under the previously announced share repurchase program, which has a remaining balance of approximately $289 million as of September 29, 2019
Opinion
From a factor scoring perspective versus the other 199 brands in the brands index, here’s where Illumina scores well as of 12/16/19:
74% as a top Operating King - sales growth, margins versus industry peers and margin expansion.
82% high margins versus peers.
78% high free cash flow growth.
86% low debt to enterprise value.
86% accelerating 1 year sales growth versus the 3 year average.
75% high R&D + SG&A over net sales aka innovators
89% high sales surprise last quarter
I’m a big believer in identifying large, important mega-trends and investing in the leaders that should benefit most from the trend. The genomics revolution is changing the world. Medical science has only scratched the surface of what’s possible and it’s the testing equipment and the repeat purchases of the consumables that is at the center of the investment opportunity. Illumina has been alone for a long time, there’s always risk that a big market has more competition but the company has such a lead and a great brand in the category that any competitor has its work cut out for it. Their market is global and never ending making ILMN a wonderful core holding in good times and bad. Yes, it’s expensive like most other Mega Brands but given the size of the market opportunity and competitive advantage they have, it probably should be expensive. Their equipment and technology helps diagnose, treat and finding the cures, that’s one heck of a total addressable market opportunity.
