Illumina Earnings: Internal and External Challenges Weigh on Its Fair Value Estimate

Narrow-moat Illumina's third-quarter results exceeded profit expectations, but a challenging macroenvironment in life sciences and instrument transition issues cut into management's 2023 guidance again and led to a much lower initial view for 2024 than we were expecting. With a continued delay of normalized growth patterns for its legacy business and the potential for Illumina to realize a lower Grail valuation than we believe it deserves if forced to divest it in late 2024, we are lowering our fair value estimate on Illumina by 15% to $228 per share from $269 previously. Shares remain steeply discounted to fair value, however.