Canaccord Drops the Ax on iRobot Corporation (IRBT)

Disappointing China demand to weigh on IRBT's valuation, says Robert Burleson; Slashes price target to $65.

iRobot Corporation (NASDAQ:IRBT) shares took a tumble on Wednesday despite a better-than-expected earnings report. The reason? The company now expects full-year revenues to be weaker in China (-25 to -30% versus prior estimate of nominal growth). According to Canaccord analyst Robert Burleson, the Chinese weakness this year stems from aggressive competition with discounted pricing.

In reaction, Burleson slashed his price target for IRBT from $95 to $65 while reiterating a Hold rating on the stock. (To watch Burleson’s track record, click here)

To the company’s credit, Q3/17 earnings results of $205.4 million in revenues and $0.76 in EPS, topped consensus estimates calling for EPS of $0.47 on revenue of $204.5 million.

Looking ahead, the company provided an update to full year guidance with revenues now expected to be in the range of $870M to $880M (from $840M to $860M), operating income in the range of $55M to $65M (from $50M to $60M) and EPS to be between $1.65 and $2.00 (from $1.35 to $1.70). Operating income at the midpoint is in line with consensus while EPS excluding this quarter’s onetime adjustments ($1.59) is slightly ahead of prior consensus estimates of $1.57.

Burleson commented, “We remain HOLD rated on IRBT following this morning’s earnings call, which saw strong results in the US and Europe, but brought a disappointing outlook for China. We continue to expect multiple compression on competitive concerns and a lack of visibility into organic demand in 2018. Further, a need to ramp spending to accelerate new products in 2018 could limit leverage. Our price target is reduced to $65, reflecting a 21x multiple that is largely in line with our organic EPS growth expectations for next year.”

Burleson is not alone in playing it safe on the home-cleaning robot maker, as TipRanks analytics exhibit IRBT as a Hold. Out of 5 analysts polled by TipRanks in the last 3 months, 4 remain sidelined, and 1 is bearish on the stock. With a slight upside potential, the stock’s consensus target price stands at $67.

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