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iRobot Gains From Solid Robotic Sales, Tariff Woes Ail

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We issued an updated research report on premium industrial auto-robotics company, iRobot Corporation (IRBT - Free Report) on Nov 30. The company currently carries a Zacks Rank #3 (Hold).

Over the past 30 days, the Zacks Consensus Estimate for the company’s earnings per share has remained unchanged at $2.69 and $2.88 for 2018 and 2019, respectively, reflecting neutral brokers’ sentiments.

Let’s dig into the fundamental aspects influencing the performance of the stock.

Growth Drivers

Stronger demand for home-robotic products like Roomba, Scooba, Braava has been bolstering iRobot’s revenues for the past few quarters. The company anticipates that growing popularity of newly launched robots like Roomba e5, Roomba i7 and i7/i7+ Roomba will continue to drive its top line in the quarters ahead. Additionally, the benefits of ongoing marketing programs are also likely to aid the upside moving ahead. Notably, the company currently anticipates generating revenues within the range of $1.08-$1.09 billion in 2018, higher than the prior view of $1.06-$1.08 billion. The new projection estimates year-over-year top-line growth of 22-23%. Per our estimates, iRobot’s year-over-year revenue growth is currently pegged at 23% and 16.5% for 2018 and 2019, respectively.

The company has recorded a positive average earnings surprise of 102.97% in the past four quarters. The company expects stronger revenues, reduced corporate tax rates and continued operational excellence to aid the bottom-line performances in the quarters ahead. Moreover, the Robopolis acquisition (October 2017) is likely to bolster iRobot’s profitability in the upcoming quarters. For 2018, the company anticipates earnings within the range of $2.55-$2.75 per share, higher than the prior projection of $2.30-$2.50 per share. Per our estimates, iRobot’s year-over-year earnings growth is currently pegged at 52% and 7.1% for 2018 and 2019, respectively.

Over the past month, iRobot’s shares rallied 6.5%, outperforming 5% growth recorded by the industry it belongs to.

Causes of Concern

The global industrial robotics market is currently facing headwinds arising from the recently-imposed trade tariffs for robotic vacuums (effective from Sep 24, 2018). The Republic-lead administration has imposed a third round of 10% tariffs over Chinese imports that includes all robotic vacuum cleaners manufactured in Beijing. Notably, Trump has indicated that tariff rates might rise up to 25% in 2019. Tariffs on Chinese imports might put additional cost pressure over iRobot, in turn weigh over its margins going forward. Notably, the company expects implementation of the September tariffs to lower its gross margin by nearly $5 million in fourth-quarter 2018.

Moreover, iRobot conducts its business in a highly competitive market. Increased marketing investment or new a product launch from of any major industry rival might adversely impact iRobot’s market share moving ahead. In fact, intense competition in the U.S. robotic vacuum cleaning market is likely to affect iRobot’s revenues in the upcoming quarters.

Further, we notice that on a P/E (TTM) basis, iRobot’s stock looks overvalued compared with the industry in terms of the respective tallies of 34.9x and 20.9x, for the past month. Notably, the stock is currently trading slightly higher than the median P/E (TTM) multiple for the same time frame.

Stocks to Consider

Some better-ranked stocks within the Zacks Industrial Products sector are listed below:

DXP Enterprises, Inc. (DXPE - Free Report) sports a Zacks Rank #1 (Strong Buy). The company has successfully pulled off a positive average earnings surprise of 112.62% in the past four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Luxfer Holdings PLC (LXFR - Free Report) flaunts a Zacks Rank of 1.  The company has recorded a positive average earnings surprise of 24.27% in the past four quarters.

Applied Industrial Technologies, Inc. (AIT - Free Report) carries a Zacks Rank #2 (Buy). The company has delivered a positive average earnings surprise of 11.67% in the past four quarters.

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