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Needham & Company Defends iRobot (IRBT)

February 12, 2016 7:56 AM EST
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Price: $8.76 +1.98%

Rating Summary:
    4 Buy, 10 Hold, 1 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 0 | Down: 0 | New: 0
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Needham & Company analyst, James Ricchiuti, sees the selloff in shares of iRobot (NASDAQ: IRBT) as overdone as consensus seems to not have been modeling in the divestiture properly. His Buy rating and $38 price target are unchanged.

IRBT shares were punished after the company posted better Q4 results and guided for an acceleration in growth in the home robot business from 10% in 2015 to 12-13% in 2016. Mgmt guided to a modest decline in adj. EBITDA for 2016 as IRBT steps up investments in its wet-floor care products.

Revs were up 30% to $206.4M, above guidance of $200-$205M and consensus $203M. Reported EPS $0.65, included a $0.05 benefit from the R&D tax credit and an investment gain of $0.06 and was ahead of consensus of $0.57. Adj. EBITDA increased 78% y/o/y to $35M, above guidance of $32-34M, bringing full-year adj. EBITDA to $92M.

The selloff seems to be an over-reaction, particularly since IRBT is targeting for adj. EBITDA margins to return to the 14-15% levels next year from an est. 13-14% this year. Mgmt again expects a back-end loaded year, but that’s been the pattern for the last 10 years. The divestiture of the defense business removes a distraction, allowing both mgmt and investors to focus on the core business, which by most metrics is performing quite well.

Total HRD rev was up 30% to $175.2M. Domestic home robot revenues (48% of home robot rev) was up 46%, the strongest growth in this market in 2 years, benefiting from ramp in the new Roomba 980. Int'l home robot revs (52% of Q4 home robot rev) increased 19% y/ o/y, driven by continued strong growth in China (+70% in 2015) and a stronger quarter out of Japan, the first y/o/y increase there in a year. Europe was flat with modest growth in western Europe offset by sharp declines in Russia. Home robot gross margin narrowed to 49.2% from 52.7% and 52.5% a year ago

IRBT guided to $(0.03)-$0.04, which includes $0.05 of divestiture costs and a D&S stub period loss of $0.05-$0.07. Consensus was $0.26. Mgmt guided for 2016 revs of $630M-$642M, which assumes home robot growth of 12-13%, and EPS of $1.20-$1.40. Consensus had been $1.65. Mgmt expects adj. EBITDA to decline 2-13% to $80-$90M as the company steps up investment in the wet floor care category.Mgmt expects adjusted EBITDA margins to return to the 14-15% as early as next year from an estimated 13-14% this year.

Reducing Q1 EPS est. to $0.01, which includes the D&S loss and divestiture costs, from $0.27 prior to the divestiture, on revs of $126M, vs. prior $136M. Revising 2016 EPS projection to $1.30 ($1.69 non-GAAP) from $1.52 on revs of $635M.

IRBT currently trades at 7.5x the midpoint of ’16 adj. EBITDA guidance.

For an analyst ratings summary and ratings history on iRobot Corporation click here. For more ratings news on iRobot Corporation click here.

Shares of iRobot Corporation closed at $28.39 yesterday.



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