) recently 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 #1
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
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 commercials.
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, Massachusetts.
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
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
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 at $1.00.
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
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor
in charge of the
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