Cantor Cuts Illumina's Price Target To $155, Positive On Pacific Biosciences Of California

Shares of Illumina, Inc. (NASDAQ: ILMN) plunged 26 percent in Tuesday's pre-market after the company slashed its third quarter sales estimate on larger than expected drop in high throughput sequencing instruments.

The company now sees third quarter revenue of about $607 million, down from earlier guidance of $625 million to $630 million.

"The weak HiSeq placements are particularly concerning because the HiSeq is the greatest driver of consumable revenue pull-through and a reacceleration may be necessary for us to become more positive with our view of shares," analyst Cantor Fitzgerald analyst Bryan Brokmeier wrote in a note.

As a result, Brokmeier maintained his Hold rating and continue to recommend investors remain on the sidelines.

Related Link: Citi Loses Some Confidence In Illumina Following Disappointing Guidance

The analyst also cut his price target by $10 to $155, based on shares trading at an EV/sales multiple of 8x his 2017 revenue estimate. Shares currently trade at EV/sales multiples of 11.2x and 9.9x his 2016 and 2017 revenue forecasts, respectively, compared to high-growth peer averages of 9.8x and 6.2x.

However, Brokmeier is positive on peers, mainly Pacific Biosciences of California (NASDAQ: PACB), despite acknowledging that the sector may trade down following Illumina's guidance cut.

"ILMN's troubles are largely company-specific and we remain positive on peers, particularly PACB. We believe expectations for PACB are fairly modest and may not be fully reflecting its strong pipeline at the end of 2Q16 or pent-up demand ahead of ramped up production of the high-volume manufacturer," Brokmeier added.

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