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Bull of the Day: iRobot Corp (IRBT)

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iRobot Corp (IRBT - Free Report) is a Zacks Rank #1 (Strong Buy) that designs, builds and sells robots products to the consumer market. The company makes the popular Roomba robot vacuum, but also makes mops, lawn mowers and a coding robot to help children learn coding.

About the Company

iRobot is headquartered in Beford, MA and employs over 1,100. The company was founded in 1990 and sells its products in chain stores, national retailers and online.

The company is valued at $2.3 billion and has a Forward PE of 23. IRBT holds a Zacks Style Score of “A” in Growth, but “F” in momentum.

Q3 Earnings

Last week the company reported EPS and saw a big beat on both the top and bottom lines. Q3 came on at $2.58 v the $0.90 expected, a 183% beat above Zacks estimates. Revenues came in at $413M v the $314M expected and the company hiked its FY20 guidance. Domestic revenues are about half the total revenues and were up 75% year over year.

The beat on earnings is something investors are used to, as IRBT hasn’t missed in four years.

A negative in the report showed gross margins were slightly lower, with the company now seeing 48.3% v 48.5% from last year. The acceleration in demand for iRobot products began when people started working from home.

CEO Colin Angle had the following comments on the quarter:

"Customer response to our Genius platform and the i3 Series has been excellent thus far...We saw revenue in each geography exceed our original plans with notable strength in U.S. order levels." 

Estimates and Upgrades

Looking at estimates for the current year, we see them going higher. Over the last 30 days estimates have ticked from $2.45 to $3.53, a gain of 20%. For next year, estimates have gone up by 16% over the same time frame.

After earnings, the company saw some upgrades. Raymond James raised the stock to an Outperform with a $98 price target. Northland Capital reiterated its Outperform and price target of $100.

Stock Sells Off

The headlines number on earnings brought excitement after hours, with the stock trading above $110. However, next year brings uncertainty on a variety of issues, so the stock sold off, falling back to $80. Margins are an issue along with the potential for tariffs, so investors took profits on the move higher.

While there are risks, the company’s sales growth and earnings are impressive. After the big sell off, it looks like investors have stepped in at technical support and see longer-term opportunity.

The Technical Take

The stock fell all the way down to $30 during the March sell off, but then rallied above $70 where it sat for over three months. The recent quarter looked like a breakout, but now the stock is back to the low $80s.  

This $80 level offers 50-day Moving average support and looks to be holding. For investors that want a larger pullback, the 200-day moving average is $67.

If the bulls can get above the $92 level, this would break the 61.8% retracement from the earnings highs and give us targets back at that $110 after hours high.

In Summary

Earnings were great, but there are some risks as we head into 2021. However, the momentum behind the company product line is strong and the revenues numbers show growth both internationally and at home.

Investors should watch the technical support at current levels and if buyers defend enter with targets above $100.

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