iRobot (IRBT) to Gain From Product Offerings Amid Cost Woes

We have issued an updated research report on iRobot Corporation IRBT on Apr 13.

The company is based in Bedford, MA, and it currently has a $3.3-billion market capitalization. It specializes in manufacturing robots that can be used for domestic and commercial purposes. The company presently carries a Zacks Rank #3 (Hold).

iRobot belongs to the Zacks Industrial Automation and Robotics industry, which comes under the Zacks Industrial Products sector. The industry is in the bottom 8% (with the rank of 233) of more than 250 Zacks industries.

In the past three months, the company’s shares have gained 28.6% compared with the industry’s growth of 2.5%. During the same timeframe, the sector has expanded 26.8% and the S&P 500 has grown 9.5%.

Important factors influencing iRobot are briefly discussed below.

Tailwinds and Top-Line Projections: In the quarters ahead, iRobot is poised to benefit from solid product offerings and demand, focus on innovations, and a healthy supply chain. Also, its commitment toward enhancing software related to home understanding, machine vision technologies and artificial intelligence might be advantageous.

For 2021, the company plans to launch new Roomba products with enhanced features. It anticipates total revenues of $1.635-$1.675 billion for 2021, suggesting growth of 14-17% from the previous year’s reported figure. Also, the company expects year-over-year growth of at least 35% or more for the first quarter.

Online and Direct Sales: Surge in business through the online platform has been aiding iRobot’s performance in the past few quarters. Notably, revenues generated from the company’s website, e-commerce sites, Home App and online source of retailers accounted for 60% of total revenues in the fourth quarter.

It is worth mentioning here that the company generated 11% of its revenues from direct sales to consumers in 2020. This source of revenues is expected to increase to at least 15% in 2021. Efforts are impressive on the part of the company to boost product awareness.

Margin-Related Headwinds: iRobot predicts that cost inflation in the quarters of 2021 will be concerning. It expects a jump of $41-$43 million in costs due to the reinstatement of tariffs on the import of products from China. This along with spending on promotional activities and pricing actions is predicted to hurt the company’s gross margin in the year. Gross margin for 2021 is expected to be in low-40%.

In addition to the above-mentioned factors, high spending for marketing and development of products can be threatening for margins. The company expects operating expenses of $555-$575 million and operating margin of 7% for 2021. Notably, the company’s operating expenses and operating margin were $487.5 million and 10.5%, respectively, in 2020.

Bottom Line & Other Projections: For 2021, iRobot expects adjusted earnings of $3.00-$3.25, suggesting a decline from $4.14 reported in 2020. The bottom-line weakness stems from high operating costs and other margin-related headwinds eroding the positive impacts of the company’s top-line growth.

In addition, it predicts a year-over-year decline in cash flow from operating activities in 2021.

Earnings Estimate Revisions: iRobot’s earnings estimates have increased in the past 60 days. Currently, the Zacks Consensus Estimate for the company’s bottom line is pegged at earnings of 7 cents for the first quarter of 2021, reflecting an improvement of 250% from the 60-day-ago figure.

Notably, earnings estimates are pegged at $3.13 for 2021 and $5.35 for 2022, marking increases of 24.2% and 31.4% from the respective 60-day-ago figures.

iRobot Corporation Price and Consensus

iRobot Corporation Price and Consensus

iRobot Corporation price-consensus-chart | iRobot Corporation Quote

Key Picks

Some better-ranked stocks in the sector are EnPro Industries, Inc. NPO, Applied Industrial Technologies, Inc. AIT and Rockwell Automation, Inc. ROK. While EnPro currently sports a Zacks Rank #1 (Strong Buy), both Applied Industrial and Rockwell carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these stocks have improved for the current year. Further, earnings surprise for the last reported quarter was 143.14% for EnPro Industries, 28.95% for Applied Industrial and 23.96% for Rockwell.

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