Illumina Delivers Case for Strong Growth in its Legacy Business at Investor Day; Shares Still Cheap

At its investor day, narrow-moat Illumina highlighted long-term growth aspirations in its legacy Illumina business that look closer to our expectations for the combination of Illumina and Grail, not just the legacy business, during the next five years. Given the uncertainty surrounding new competitive forces in the legacy sequencing business, near-term macroeconomic pressures that could be felt, and the potential unwinding of the Grail acquisition; we think it is prudent to stay put at our $307 fair value estimate, for now. However, we still view shares as cheap, and we think investors should realize that our high uncertainty rating includes upside potential, not just downside risks, relative to our long-term cash flow assumptions that drive our fair value estimate. In fact, if Illumina can meet management's lofty expectations, our fair value estimate may even prove too conservative.