Illumina Inc (ILMN)

Conclusion

Illumina Inc (ILMN.US) is a US healthcare company that sells sequencing and array-based instruments, consumables and genomic testing services to research centres, hospitals and diagnostic laboratories. At 220.78 USD on 2026-11-09, its market capitalisation is 33.4 billion USD.

The verdict is fair. The fair value band runs from 157.17 to 235.75 USD with a midpoint of 196.46 USD, giving a margin of safety of -11.0% at the current price. Against their own ten-year medians, the price-to-earnings ratio of 37.3 and the enterprise value to EBITDA of 24.8 are lower than the medians of 52.6 and 39.6, while the price-to-book ratio of 10.6 is above its median of 8.3. The DCF gives 81.51 USD per share at a discount rate of 12.15%, and the fair value from historical multiples is 311.42 USD. The reverse DCF implies growth of 20.2% a year, against revenue growth of 6.0% over five years and 6.9% over ten.

What holds the case up is a strong balance sheet, with an Altman Z-score of 7.03, and returns above the cost of capital, with ROIC of 21.1% against a WACC of 11.6%. Free cash flow conversion of 118.1% on a trailing basis also supports earnings. What would break it is the implied growth of 20.2% a year, which is well above the 6.0% delivered over five years. Revenue also fell at a compound rate of 1.8% over three years, and the DCF of 81.51 USD sits far below the current price.

Financial health

Financial strength is green, held up by the current ratio of 2.63, the quick ratio of 1.80, net debt to EBITDA of 0.70 and interest coverage of 11.0, all assessed as good. Debt to equity of 0.74 is moderate. The Altman Z-score of 7.03 falls in the safe zone, although that model was designed for manufacturers, and Illumina sells instruments but is not one in the strict sense. Insolvency risk: low, about 0.3% by the estimate of the Ohlson model over one to two years. Because of the strong liquidity and low leverage, the company has room to absorb a weaker period in sales or margins without raising debt.

Earnings quality

Earnings quality is green. Free cash flow conversion is 118.1% on a trailing basis, which is assessed as good, but the five-year figure is not available. The accrual ratio is -3.5%, which means cash earnings exceed reported earnings. Stock-based compensation is 3.0% of revenue, and free cash flow after it is 920 million USD. The share count has grown by 1.1% a year over five years, so there have been no net buybacks. The Piotroski score is 8 out of 9. The Beneish M-score is not available. The company beat earnings estimates in 7 of the last 8 quarters, with an average surprise of 7.5%. Estimates for next year have been revised up by 2.0% over 90 days, with 8 upgrades and 3 downgrades in the last 30 days.

Profitability

Profitability is green. The gross margin of 68.3% is above its ten-year median of 67.4%, the operating margin of 22.4% is well above its median of 16.0%, and the net margin of 19.7% is close to its median of 19.4%. ROIC of 21.1% against a WACC of 11.6% gives a ROIC minus WACC value of 9.5 percentage points, which is assessed as creating value. The five-year median ROIC is -12.0%, so the current return is a recent development. Return on equity of 28.5% is higher than ROIC, and the DuPont split shows that part of it comes from leverage: an equity multiplier of 2.44 alongside a net margin of 19.6% and an asset turnover of 0.65.

Growth

Growth is yellow. Revenue compounded at -1.8% over three years, 6.0% over five years and 6.9% over ten. Revenue grew in 6 of the last 10 years. Earnings per share grew at 4.2% a year over five years and 5.8% over ten. Free cash flow per share grew at 106.8% a year over three years, but it fell at 0.2% a year over five years and rose at 5.6% over ten. The one good signal is the forecast of 12.9% earnings growth for next year, which is a single year and does not yet offset the weak three-year revenue record.

Valuation

Valuation is yellow. The price-to-earnings ratio of 37.3 is a discount of 29.1% to its ten-year median of 52.6, and enterprise value to EBITDA of 24.8 is a discount of 37.4% to its median of 39.6. Price to free cash flow of 31.6 is a discount of 45.8% to its median of 58.2, while price to book of 10.6 is a premium of 28.7% to its median of 8.3. The DCF gives 81.51 USD per share at a discount rate of 12.15%, with 43.4% of value in the terminal value. The reverse DCF implies growth of 20.2% a year against 6.0% delivered over five years. The fair value band runs from 157.17 to 235.75 USD. The company pays no dividend.

Risks

The weakest number is the DCF of 81.51 USD, which sits far below the price. The fair value band rests on the same fixed assumptions, including a 5% equity risk premium and capped growth, so it is an order of magnitude rather than a target. The reverse DCF implied growth of 20.2% a year would require much faster expansion than the 6.0% of the last five years. Revenue fell over three years, so the implied growth depends on a turnaround. The share count is rising, which dilutes existing holders. The five-year free cash flow conversion, the Beneish M-score and the debt maturity schedule are not available. The analysis does not include revenue by segment, so it cannot show which part of the business drives the decline.