ILMN

Illumina is a high-quality franchise that has just turned the corner on profitability. After two years of GRAIL-driven losses (net income -$1.16B in FY2023 and -$1.22B in FY2024), FY2025 net income swung to +$850M (+169.5%) and diluted EPS to $5.45 (+170.9%), with operating income up to $807M (+196.9%). Profitability is genuinely strong on a normalized basis: 66.1% gross margin, 18.6% operating margin, 19.6% net margin and a 31.2% return on equity. The balance sheet is healthy — $1.42B cash (+25.8%), $2.72B equity (+14.7%), and current assets of $3.29B against $1.58B current liabilities (current ratio ~2.1) — and operating cash flow of $1.08B (+28.9%) comfortably funds $148M of capex. Management is returning cash aggressively, with $742M of buybacks (+539.7%) shrinking the share count 3.5%.

The problem is the top line and the price. Revenue of $4.34B was down 0.7% YoY and has now declined for three straight years from the $4.53B FY2022 peak — this is a no-growth business at present, not a compounder. R&D was cut 17.3% to $967M, which boosts near-term margins but is a warning sign for a company whose moat depends on staying ahead in next-generation sequencing; under-investing here can erode the very franchise that justifies the multiple. Retained earnings remain negative at -$392M, a reminder that the recent losses were large and real.