New Roomba: Good For iRobot Shareholders?

• iRobot Corporation IRBT shares have lost 8 percent over the last three months, and have traded below the $30 mark since September 20.
• Oppenheimer’s Holden Lewis maintained a Perform rating on the company.
• The launch of Roomba 980 strengthens the case for iRobot’s improved momentum next year, Lewis said.

Analyst Holden Lewis mentioned that there were near-term concerns surrounding iRobot’s performance. While there are expectations of robust results in 4Q15, there is lack of clarity over military contribution in 2016, and the company’s ability to beat expectations generally in 2016 is unproven.

Having said that, Lewis elaborated on a “low-key pile-up of positive events”:

1. iRobot has launched its latest Roomba, which is believed to have enhanced cleaning performance, mapping capabilities and wi-fi connectivity. The Roomba 980 is already available in the US and Canada and is expected to be introduced in Japan and Western Europe in 4Q15.
2. The new product is expected to boost ASPs. While gross margins are likely to remain flat, iRobot has projected operating leverage opportunities in 2016.
3. With a more stable currency, iRobot is not hard pressed to immediately increase its marketing budgets for its overseas partners. “It also fronted a lot of spending on Roomba in 2015 ahead of the release relative to what it will have to do in 2016,” Lewis wrote.

“Further, in a cautious environment its debt-free B/S and low valuation, to say nothing of an activist investor and robot sector M&A perking up, may be viewed more favorably by some investors,” the Oppenheimer report noted.