Illumina: Investigating your genes

Innovative technologies now allow such detailed analysis of genetic variation and function that firms can work on the development of "personalized medicine". There is an outfit in San Diego that is in the front wave of firms designing the machines that make such research possible.

Illumina (NASDAQ: ILMN) is engaged in the development and marketing of tools for the analysis of genes. The firm sells systems that determine variation in genetic sequences, analyze which genes are active in a particular cell or group of cells, profile changes in genetic sequence function, and determine which proteins are present in cells and how they interact. Customers include biotechnology companies, research centers, and academic institutions.

The firm pleased investors last week, when it reported Q2 EPS of 16 cents and revenues of $84.5 million. Analysts had been expecting 13 cents and $77.7 million. Management also guided Q3 revenues to $88-92 million ($82.32M consensus) and FY07 revenues to $335-345 million ($323.05M consensus).

The stock popped on the news and is now forming a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the shares with four "strong buys," seven "buys" and three "holds." Analysts see a 71% growth rate through the next year. The ILMN Sales Growth rate (103.32%) compares favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 95% of the outstanding shares. Over the past 52 weeks, ILMN has traded between $28.11 and $48.00. A stop-loss of $40.65 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.