Analysts at Canaccord Genuity (TSX:CF, LSE:CF) have reiterated their ‘Buy’ rating for Illumina Inc (NASDAQ:ILMN) following recent activism efforts against the biotechnology company led by veteran activist investor Carl Icahn.
Icahn, who owns a 1.4% stake in the San Diego-based DNA sequencing company, on March 13 issued a letter to Illumina shareholders criticizing its $7.1 billion merger with Grail and nominated three individuals to join the company’s Board of Directors.
On Monday, Illumina said Icahn’s director nominees “did not add value to the Board and will damage Illumina’s core business.”
“Although some of Mr Icahn’s points are not completely false, we believe that the appointment of new board members could be potentially destructive to the company’s long-term strategy and growth potential,” Canaccord’s analysts wrote in a note to clients.
“Critically, shareholders and investors should understand the importance of positioning Illumina for long-term value creation (with or without Grail).”
The analysts wrote that it appears likely that Grail will be divested and they believe the company would benefit from completing this process with relative urgency.
“We believe the most important long-term consideration is the cash flow unlocked by removing Grail (roughly $670 million non-GAAP operating loss in 2023),” they wrote.
“Although we think Grail is accretive to ILMN's overall valuation, removing the business from our 10-year discounted cash flow (DCF) model would still yield a price target nicely above current levels.”
The analysts’ price target remained unchanged at US$300. Illumina shares were down 2.7% at US$218.49 on Monday afternoon.
“We continue to believe ILMN shares are attractive and expect meaningful appreciation as the conclusion to the Grail saga draws closer, although this could last beyond 2023,” the analysts concluded.
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