4. Illumina, Inc. (NASDAQ:ILMN)
Number of Hedge Fund Holders: 49
Illumina, Inc. (NASDAQ:ILMN) provides sequencing and array-based solutions for genetic and genomic analysis. On November 15, Illumina revealed that it is reducing about 5% of its global employees in response to the current macro environment. On November 14, Piper Sandler analyst David Westenberg maintained an Overweight rating on Illumina, Inc. (NASDAQ:ILMN) stock and lowered the price target on Illumina to $300 from $320.
Among the hedge funds being tracked by Insider Monkey, New York-based firm Select Equity Group is a leading shareholder in Illumina, Inc. (NASDAQ:ILMN) with 1.6 million shares worth more than $297.8 million.
In its Q3 2022 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and Illumina, Inc. (NASDAQ:ILMN) was one of them. Here is what the fund said:
“Illumina, Inc. (NASDAQ:ILMN) has had a very difficult year on what we believe are transitory issues. First, the company closed its acquisition of Grail, a startup early-stage cancer testing business it re-acquired (Grail was founded inside Illumina originally) for $8 billion without regulatory approval. Illumina management believes that European regulators have no jurisdiction over the transaction as Grail had no European presence or revenue and member states did not complain within the timeframe specified in applicable regulations. The regulators have challenged these assertions and are likely to try to require Illumina to divest Grail subject to Illumina’s appeal. In the meantime, Grail has already been very dilutive to Illumina’s earnings, and Illumina may have to sell the asset at the end of it all. It is unknown how much Grail could be sold for in this environment if Illumina is forced to divest.
Second, Illumina’s core sequencing business has also slowed. This is not unusual as the business has always been a bit lumpy, but new competitors are trying to prove that they can sequence genomes cheaper than Illumina without sacrificing accuracy. Our research here suggests: 1) competitor technologies do not seem to be as cost-effective or accurate in the real world as advertised, providing limited risk to Illumina’s core business; 2) Illumina has unveiled its next-generation technology, which lowers the cost of sequencing the human genome to only $200, including data processing costs with world-class accuracy; 3) the slowdown in the core business is more macroeconomic as customers are looking to reduce consumables inventory levels in tough times and should pass quite quickly considering customers are continuing to use their sequencers at high levels; and 4) even if Illumina were forced to divest Grail, we think they would likely be able to sell it for above what it purchased it for as all of the clinical data on the company’s Galleri cancer screen is now publicly available (it is very positive in our view). Grail has made significant commercial progress since its acquisition, and the company should only be closer to U.S. regulatory approval. We believe we can buy the shares today at an extremely cheap valuation for the core business of a company that we view as having an unmatched position in a market that should be multiples of its current size in the years to come.”
