iRobot Corporation (IRBT): Roomba 880 Should Keep Growth Going

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iRobot Corporation (IRBT): Roomba 880 Should Keep Growth Going
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Susquehanna Financial Group analysts Meghna Ladha and James E Friedman maintain a Positive rating for iRobot Corporation (NASDAQ:IRBT) as the robotic company announce its financial results.

Roomba 880 launch in U.S. and international markets, strength in APAC and recovery in Europe should continue to support iRobot Corporation (NASDAQ:IRBT)’s growth momentum in 2014. We maintain our Positive rating and $40 price target.

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iRobot Corporation (IRBT) earnings highlights

  • 4Q revenue of $126.3 mln was modestly above our estimate; EPS beat by 2 cents at $0.11.
  • 2014 guidance contemplates $560-$570 mln (15-17% Y/Y growth) in net revenue and EPS of $1.00-$1.15 (consensus at $1.11).
  • Total home robot revenue increased 30.6% in 4Q and is expected to contribute $500-$515 mln in revenue (17-20% growth) in 2014.
  • Domestic Home robot revenue increased 50% in 4Q thanks primarily to new product sales. International home robot revenue increased 18% with weakness in Europe offset by strength in APAC.
  • iRobot Corporation (NASDAQ:IRBT) is seeing signs of recovery in Europe as macroeconomic headwinds subside and new products are rolled out (Braava).
  • China contributed <$10 mln in revs in 2013.
  • Next generation Roomba launch (800 series) has performed above expectations to date and the Scooba 450 is expected to roll out to new geographies in 2014.
  • Reiterated long-term guidance through 2016 of mid-high teens revenue growth.

Catalysts

New distribution channels for home robots; Roomba 880 launch in stores in 1Q.

Downside risk for iRobot

Our downside risk of $33 is based on ~23x our forward EPS estimate, essentially in-line with its growth rate. We believe the stock could test such a level should iRobot Corporation (NASDAQ:IRBT) lose its leading position and fail to maintain double-digit growth in the home care robot segment. Additionally, a less effective S&M and slower product upgrade cycle could negatively impact profitability.

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