Illumina Downgraded at Stifel, UBS on Grail Deal Accord

Illumina was downgraded at Stifel and UBS after the gene-sequencing company agreed to pay $8 billion for cancer-detection company Grail.
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Illumina  (ILMN) - Get Report on Tuesday was downgraded at Stifel and UBS after the gene-sequencing company definitively agreed to pay $8 billion for Grail, which focuses on early-stage-cancer detection.

Grail is backed by Amazon AMZN Chief Executive Jeff Bezos. The deal, financed with $3.5 billion cash and $4.5 billion of stock, would give Illumina access to Grail's specialized blood-testing technology platform for early cancer detection.

UBS analyst Dan Brennan cut his rating on Illumina to neutral from buy and his share-price target to $285 from $390.

UBS analyst Dan Brennan cut his rating on Illumina to neutral from buy and his share-price target to $285 from $390.

The strategic shift and limited visibility that are part of the acquisition helped spark his move, Bloomberg reports. 

“Given the material shift in strategy this deal signifies, combined with dilution and limited visibility, we see the risk-reward as more balanced,” Brennan wrote in a report.

Stifel analyst Daniel Arias slashed his rating to hold from buy and his share-price target to $280 from $380. 

The dilutive deal “throws the ILMN valuation case into disarray,” he wrote, according to Bloomberg.

Morningstar analyst Julie Utterback expressed some skepticism about the deal, too.

“Admittedly, the market opportunity looks very large for a testing technology that could screen the global population for early-stage cancers if it were added to annual screening requirements for most adults,” she wrote.

“However, Illumina management previously described this market as being pursued by dozens of life science players, and although Grail appears to have a first-mover advantage (potential launch in 2021), competitive tests could siphon off market share and pricing in the long run.”

Utterback kept her fair value estimate at $285.

Illumina shares recently traded at $264.78, down 2%. They had slumped 19% year to date through Monday.