iRobot Corporation (NASDAQ:IRBT) seems to have lost its sheen due to difficult market conditions in the wake of the coronavirus outbreak and tariff-related woes. Its price performance has been weak lately, while earnings estimates have been lowered, indicating bearish sentiments for the stock.
The company has a market capitalization of $1.2 billion and a Zacks Rank #4 (Sell) at present. It belongs to the Zacks Industrial Automation and Robotics industry, currently at the bottom 25% (with the rank of 191) of more than 250 Zacks industries.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
We believe that the industry is suffering from global uncertainties, unfavorable movements in foreign currencies, cost escalation — mainly resulting from tariff woes — and other headwinds.
Notably, iRobot delivered better-than-expected results in fourth-quarter 2019, with earnings and sales surpassing estimates by 66.7% and 3%, respectively. However, the top line declined 40% year over year.
In the past three months, the company’s shares have fallen 14.2% compared with the industry’s decline of 29.7%.
Factors Affecting Investment Appeal
Coronavirus-Related Headwinds: iRobot remains wary of the adverse impacts of the pandemic on its sales activities and manufacturing supply chain. For the first quarter of 2020, it expects sales of $175-$185 million, suggesting a decline of 22-26% from the year-ago reported figure. Notably, the company earlier predicted a fall of 8-12% for the first quarter.
Further, iRobot withdrew its projections for 2020.
Tariff-Related Woes: Trade war with China has been adversely impacting the industrial robotic industry of the United States. In 2019, the United States imposed tariffs of 25% on China imports — including robotic vacuum cleaners manufactured in Beijing. The tariff rate was higher than 10% implemented in September 2018. Higher tariffs on robotic products increase cost pressure for the company, impacting its revenues and margins. For instance, tariff costs had a negative impact of $21.9 million on iRobot’s operating income in fourth-quarter 2019.
Recently, the company’s request to exempt Roomba products from section 301 tariffs advanced to stage 3. If the exemption is granted, iRobot anticipates to better deal with the prevalent macro headwinds.
Competitions: The launch of similar or new products by rivals remains concerning for iRobot. To deal with this, the company invests heavily in promotional activities, which, in turn, might inflate its costs and hurt margins.
Some other major players in the industry are Fanuc Corp. (OTC:FANUY) , Hollysys Automation Technologies Ltd. (NASDAQ:HOLI) and Rockwell Automation, Inc. (NYSE:ROK) . All three companies currently carry a Zacks Rank #3 (Hold).
Bottom-Line Estimate Trend: The Zacks Consensus Estimate for the company’s earnings has been revised downward in the past 60 days. Currently, its earnings estimate is pegged at 85 cents per share for 2020 and $1.61 for 2021, reflecting declines of 20.6% and 25.8% from the respective 60-day-ago figures.
iRobot Corporation Price and Consensus
iRobot Corporation price-consensus-chart | iRobot Corporation Quote
Also, the company’s estimates have moved down from earnings of 18 cents per share to a loss of 51 cents for the first quarter of 2020.
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