Citigroup Initiates Hold Rating on Illumina Inc. (ILMN)

Citigroup is out with a research report this morning, where it initiated a Hold rating on shares of Illumina Inc. ILMN; it has a $52.00 price target on the stock. The Citigroup analysts said, “Illumina is a life sciences tools company that has clear market leadership and proven technological innovation in next generation sequencing, the fastest growing market in the space. Our neutral thesis on the stock is based on our view that ILMN's current relative valuation multiple relative to its peer group (45.1x vs. 17.6x) and relatively high YTD stock price performance +47% already reflects the positive growth prospects for NGS technology stemming from the Hi Seq 2000 launch, but may not fairly discount the risk from other sizable players in the market.” They noted, “Positive views on stock appear to be already reflected in the price; these include: (1) NGS technology is poised for rapid growth in the next few years driven by continued cost declines and motivation for medical applications of genetic analysis; (2) New content from GWAS could spark renewed demand for microarrays for diagnostic use; (3) Applied markets are large market opportunities, especially in agriculture, forensics and consumer genetic sequencing; (4) and growth of cancer research effort in molecular diagnostics.” The Citi analysts closed by saying, “(Our) $52 target is based on a P/E multiple of 40x our 2011E EPS of $1.30. We believe ILMN EPS growth will continue to outpace S&P earnings growth through 2013, therefore a 3.3x relative P/E appears sustainable and implies a roughly 40x multiple. Also, with ILMN's LT EPS growth of 28% more than double its comp group (comps currently at 12%), we believe that the 40x P/E is appropriate.”