Illumina Inc Valuation – Initial Coverage $ILMN
Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Illumina Inc (ILMN) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Illumina, Inc. (Illumina) offers sequencing and array-based solutions for genetic analysis. The Company’s products and services serve customers in a range of markets, enabling the adoption of genomic solutions in research and clinical settings. The Company’s customers include genomic research centers, academic institutions, government laboratories and hospitals, as well as pharmaceutical, biotechnology, agrigenomics and commercial molecular diagnostic laboratories, and consumer genomics companies. It provides sample-to-answer solutions to its customers in various areas of translational and clinical genomics, such as reproductive and genetic health, and oncology. It provides reproductive-health solutions, including preimplantation genetic screening and diagnosis, noninvasive prenatal testing, and neonatal and genetic health testing. It also provides whole-genome sequencing, genotyping and NIPT services. It has operations in the United States, Europe, Asia-Pacific and other markets.
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Downloadable PDF version of this valuation:
moderngraham-valuation-of-ilmn-december-2016
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $18,814,989,489 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 3.62 | Pass | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -589.08% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 50.97 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 8.44 | Fail | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 3.62 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.63 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Fail | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $2.51 |
| MG Growth Estimate | 15.00% |
| MG Value | $96.61 |
| Opinion | Overvalued |
| MG Grade | C- |
| MG Value based on 3% Growth | $36.39 |
| MG Value based on 0% Growth | $21.33 |
| Market Implied Growth Rate | 21.23% |
| Current Price | $127.90 |
| % of Intrinsic Value | 132.39% |
Illumina, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.81 in 2012 to an estimated $2.51 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 21.23% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Illumina, Inc. revealed the company was trading above its Graham Number of $32.3. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 50.97, which was above the industry average of 40.07. Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.96.
Illumina, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $1.96 |
| Graham Number | $32.30 |
| PEmg | 50.97 |
| Current Ratio | 3.62 |
| PB Ratio | 8.44 |
| Current Dividend | $0.00 |
| Dividend Yield | 0.00% |
| Number of Consecutive Years of Dividend Growth | 0 |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/16/2016 |
| Total Current Assets | $2,277,836,000 |
| Total Current Liabilities | $628,855,000 |
| Long-Term Debt | $1,040,765,000 |
| Total Assets | $4,227,827,000 |
| Intangible Assets | $1,031,555,000 |
| Total Liabilities | $1,987,680,000 |
| Shares Outstanding (Diluted Average) | 147,901,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $3.04 |
| Dec2015 | $3.10 |
| Dec2014 | $2.37 |
| Dec2013 | $0.90 |
| Dec2012 | $1.13 |
| Dec2011 | $0.62 |
| Dec2010 | $0.87 |
| Dec2009 | $0.53 |
| Dec2008 | $0.30 |
| Dec2007 | -$2.57 |
| Dec2006 | $0.41 |
| Dec2005 | -$0.26 |
| Dec2004 | -$0.09 |
| Dec2003 | -$0.42 |
| Dec2002 | -$0.65 |
| Dec2001 | -$0.42 |
| Dec2000 | -$0.69 |
| Dec1999 | -$1.96 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $2.51 |
| Dec2015 | $2.04 |
| Dec2014 | $1.40 |
| Dec2013 | $0.88 |
| Dec2012 | $0.81 |
| Dec2011 | $0.41 |
| Dec2010 | $0.18 |
| Dec2009 | -$0.22 |
| Dec2008 | -$0.54 |
| Dec2007 | -$0.84 |
| Dec2006 | -$0.05 |
| Dec2005 | -$0.31 |
| Dec2004 | -$0.37 |
| Dec2003 | -$0.62 |
| Dec2002 | -$0.73 |
| Dec2001 | -$0.71 |
| Dec2000 | -$0.75 |
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
