iRobot Corporation

42.4100 132.8800
52 weeks
52 weeks

Mkt Cap 1.44B

Shares Out 28.06M

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IRobot Stock Rallies Because a Bear Has Retreated

Colin M. Angle, chairman, CEO and founder of iRobot.

Shares of iRobot, maker of Roomba automated vacuum cleaners, are trading higher Thursday after an analyst shed his bearish outlook for the company.

Raymond James analyst Brian Gesuale upgraded iRobot stock (ticker: IRBT) to Market Perform from Underperform.

In 2019, iRobot shares were down 40% in 2019, and finished the year off more than 60% from their peak in April, due to a combination of factors related to U.S. tariffs placed on China-manufactured robotic vacuums.

The company initially raised prices in response to the tariffs, but then retreated as sales tumbled. Gesuale’s research note reads like he can’t really decide how to advise investors on the stock. For instance, he cut his 2020 earnings-per-share forecast to $1.10 from $2.40 to reflect the impact of no tariff relief this year. But then a paragraph later he added that his view on tariffs is likely too grim, and that some relief actually is likely in 2020. And if that happens, he says, his estimates will be too low.

Gesuale wrote that the rating change reflects the fact that “estimates are washed out, potential upside catalysts exist, and there are few negative catalysts to push shares below the $45-$55 range. (The stock closed Wednesday at $53.40.)

Gesuale cautioned that pricing in the sector remains aggressive, with new entrants in the market, potentially driving robotics vacuums into a “commoditization phase.” But he added that “upside events could jolt shares temporarily higher.”

The analyst wrote that fourth-quarter results “could come in ahead of consensus,” adding that “volumes were solid and expenses likely give some lift to earnings after consensus estimates were cut a few months ago.” But he thinks Street estimates for the first quarter are too high.

“The simpleton in us questions what else could shock shares lower, given numbers are washed out, tariffs are unlikely to worsen, and pricing shouldn’t materially worsen,” he wrote. “At the same time, what can go better? Tariffs could be washed away, adding north of $1.25 to EPS and driving positive revisions for the first time in more than a year.”

In every paragraph, Gesuale sounds torn. He noted that at $53, the stock is trading at 53 times consensus forward EPS estimates, versus a five-year average of 30 times. But if you exclude tariffs, 2020 profits would roughly double, and the price/earnings multiple falls in half. “At this point,” he concluded, “we think risk/reward is fairly congruent.”

On Thursday, iRobot stock is up 2.5%, to $54.76.


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