(IRBT - Analyst Report
beat estimates in a big way. The stock fell on the lack of a
move in forward guidance, but analysts are still moving
numbers higher. IRBT is the Bull of the Day as a Zacks Rank
Big Quarters Coming
The third and fourth quarters are the make it or break it
period for retailers. That applies not only to department
stores, but the companies that produce the item in those very
stores. This year could be a big one for the maker of the
Roomba robotic vacuum cleaner.
Part of the reason the analysts keep increasing their revenue
estimates for iRobot has been the increased advertising
spend. The company has increased its consumer awareness
through large scale media buys, especially in TV
iRobot makes and markets robots for the consumer, government,
and industrial markets worldwide. It offers consumer
products, including floor vacuuming and washing robots, floor
sweeping robots, and pool and gutter cleaning robots. The
company also provides defense and security products. The
company was founded in 1990 and is headquartered in Bedford,
It has been four and a half years (18 quarters) since IRBT
produced a negative earnings surprise. That was just about
the time the Bush Administration was in office. So plenty of
dust and debris has been swept up since then.
Zacks adds back in the options expense that the rest of Wall
Street omits from earnings. So our view of the most recent
quarter was a beat of $0.01 or 5% ahead of the $0.20
expectations. The rest of Wall Street saw it as an $0.11
beat of the $0.17 consensus estimate.
Following the most recent earnings release, the stock fell
13% as Wall Street was looking for the beat to come with a
raise in guidance. No such luck for short term oriented
investors, but those in the name for the longer haul will
appreciate the fact that this makes it much easier to beat
estimates over the next two quarters.
Not Only On the Floor
Yes the Roomba is the flagship product right now, but look
for the Scooba - a floor washing robot - to get more
attention over the next few quarters. Hardwood floors have
been all the rage over the last several years, and the Swifer
may have capitalized on that market, but having a robot do it
for you makes for a compelling argument to switch over.
The company also has a hard surface cleaning robot, one for
the pool and even one for the gutter. Those cleaning robots
are great, but another segment of the company is the Defense
& Security robots.
Most will suggest that this segment is in jeopardy due to
sequestration, but I don't buy it. I believe the objective
of saving lives is at a premium so instead of buying a $1B
jet, the DOD would rather spend $50M on robots that detect
bombs or can help in other ways.
Earnings Estimates Roll Higher
Since March 2013, estimates have been moving higher and
higher. The Zacks Consensus Estimate for IRBT has moved from
$0.80 to $0.91 in April to $0.95 in June and presently stands
The same can be said of 2014 estimates. In March they stood
at $0.93 and then moved to $1.05 in April. Another jump to
$1.08 in June was followed by a final bump to the current
estimate of $1.12.
The valuation picture for IRBT is not a cheap one. But in
paying up for the stock now, you get some growth that is
really trouncing the competition. The forward PE of 32.8x is
much higher than the 14.2x industry average. When we look to
over metrics, like the 3x price to book multiple, we see a
similar premium to the industry average of 2.5x. Even the
price to sales multiple of 2.1 feels a bit lofty, but there
is good reason for this. As an industry leader IRBT is
projected to see 12.8% revenue growth this year while the
rest of the industry is looking at -3.5% growth. Negative
growth numbers aren't what investors tend to get excited
about and they also hurt the possibility of earnings growth.
Speaking of earnings growth, IRBT is slated to see 88% growth
in EPS this year and 12% next year. The industry average is
looking for 0.5% earnings growth this year and 10% next year.
The price and consensus chart for IRBT shows a few things.
First and most importantly it shows that when estimates fall,
the stock moves only a little to the downside. The same is
not true of when earnings estimates (represented by the
colored lines on the chart) are increasing. The estimates
for 2013 and 2014 are moving higher, and the recent pull back
in the stock is making for a wonderful entry point in the
stock. Indeed, these are the droids you are looking for.
Brian Bolan is a Stock Strategist
for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the
stocks in the portfolio.
Brian is also the editor of Breakout Growth
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a risk limiting strategy. Subscribers get daily emails along
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