IRobot's Business Initiatives Impressive, Risks Remain

We issued an updated research report on premium appliances company iRobot Corporation IRBT on Aug 29, 2016. The company designs and sells mechanized robots worldwide for defensive, household and security-related purposes.

Scope for Growth

iRobot expects higher earnings and revenues in the upcoming quarters on the back of its robust Home Robotic’s business and the successful divestiture of the Defense & Security segment. The company anticipates 14% revenue growth from its Consumer business in 2016. Moreover, higher demand for Roomba and Brava category robots is estimated to boost the top and bottom line.

Based on these positives, management has raised its full-year 2016 earnings and revenue guidance. Moreover, the company perceives that its innovative market penetration and development strategies would improve the sale of its existing as well as new products in the near future. Also, iRobot has implemented a fresh capital allocation program in 2016. The plan targets several strategic investments to drive revenues in 2017 and beyond.

Reinforcing its competence in the field of the robotic vacuum cleaning market, tapping the growing demand of robotic floor care market in China, scaling up existing business infrastructure, innovating non-floor care home robotic products and reducing operational costs are the major agendas addressed by the company under the program.

Ongoing Issues

International operations have exposed iRobot to several economic, political and environmental headwinds. Appreciation of the U.S. dollar has been notably weighing upon the company’s international revenues and margins in recent times. This is because a stronger U.S. dollar increases the competitive power of the smaller rivals operating in low-cost nations. Moreover, lackluster performance of economies such as Brazil, China and Russia has also been affecting its foreign sales of late. The company also relies on single source contract manufacturers and hence, its brand status or business performance, both are highly dependent on these manufacturers.

Stocks to Consider

iRobot Corporation currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include HollySys Automation Technologies, Ltd. HOLI, ACCO Brands Corporation ACCO and Alarm.Com Holdings, Inc. ALRM. HollySys Automation Technologies currently sports a Zacks Rank #1 (Strong Buy), while both ACCO Brands Corporation and Alarm.Com Holdings, Inc. carry a Zacks Rank #2 (Buy).

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