In this article, let's take a look at Stanley Druckenmiller (Trades, Portfolio)´s top position, Illumina Inc. (ILMN, Financial), a $30.84 billion market cap company. It provides sequencing and array-based solutions for genetic analysis in North America, Europe, Latin America, the Asia-Pacific, the Middle East, and South Africa.
Hedge Funds Positions
Stanley Druckenmiller (Trades, Portfolio) disclosed holding 410,100 shares of the company´s shares at the end of the first quarter of 2015, with the shares having an aggregate value of $76.1 million and representing almost 10% of his portfolio. Andreas Halvorsen (Trades, Portfolio)´s Viking global is the largest shareholder of Illumina, holding 8.5 million shares, the value of the stake amounting to $1.58 billion, according to its latest 13F filing.
Earnings Growth
The genetic testing tools company operates in a competitive sub-industry and faces strong competition. This does not mean that the firm could achieve a good growth as new applications evolve in the clinical diagnostic markets which we believe is a faster growing one. This is essential for any company to achieve sustainable earnings growth. Obviously that everything that involves technologies advances have some risks, but we don´t think it is a threat right now.
While dominating the genome sequencing market, this young company is focused on reaching low levels of operating costs. We must remember that there are high barriers to entry in this market, which means no risk of new companies.
Acquisitions
In 2007, Illumina acquired Solexa, Inc., a developer of genetic analysis systems, for $14 per share or $615 million. Later, in 2013, the company acquired Verinata Health, a leading provider of non-invasive tests for the early identification of fetal chromosomal abnormalities for $350 million. The deal makes Illumina to have access to intellectual property.
Analyzing Quarter Results
The firm posted first quarter revenue of $538.6 million, above analysts' average estimate of $525 million. On a per-share and excluding the non-recurring items, Illumina earned $0.91, above 26% analysts' expectation of $0.72 per share.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 74.3x, trading at a premium compared to a median of 33.1x for the industry. To use another metric, its price-to-book ratio of 19.0x indicates a premium versus the industry median of 3.4x while the price-to-sales ratio of 16.1x is above the industry average of 3.06x. The three metrics indicate that the stock is relatively overvalued and subject to a potential sell.
Final Comment
Illumina has a solid annual EPS growth rate. The stock price has been moving in a trading range of $142.12-$219.09 in the past 52-weeks. Its last price of $215.07 is at the top of the range, and it is the high level of the year. In my opinion, investors should wait to start an investment in Illumina stock.
Several hedge fund managers initiated a position in Q1. Gurus like John Burbank (Trades, Portfolio), Steve Mandel (Trades, Portfolio), Ray Dalio (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) have bet on this biotech stock.
Disclosure: Omar Venerio holds no position in any stocks mentioned
