iRobot Still A Buy After 2Q Earnings (NASDAQ: IRBT)

Beating The Estimates Again And Again

iRobot (NASDAQ: IRBT) got the market’s attention a month ago when it gave an update on 2nd quarter performance. The company said it saw a huge turn-around in Q2 revenue and updated its revenue target considerably. The actual results, at the risk of sounding cliche, absolutely blew the consensus right out of the water. The company delivered such a stunning beat on both the top and bottom line I have to wonder if the analysts were paying attention when the company gave its update.

Colin Angle, chairman and chief executive officer of iRobot, stated, "Consistent with our business update last month, iRobot delivered a stronger-than-expected second-quarter performance as demand strengthened meaningfully during the quarter.

And The Results Are …

The analysts had been expecting iRobot to produce positive revenue growth for the quarter but only about 2.0% compared to the 7.6% produced. The real surprise, though, came on the bottom line where Adj EPS was projected to decline -40%. On an adjusted basis, EPS of $1.06 beat by $0.77 and GAAP EPS by $0.80.

Results were driven by a number of factors that include higher demand. The company saw a 43% uptick in demand for premium robots, a shift that is part of iRobot’s greater strategy, coupled with cost-cutting efforts and margin expansion. Every region saw an increase in activity led by Japan (+43%) and the U.S. (+13%).

“Our top-line results were highlighted by 43% growth in our premium robots. Quarterly revenue in each major geographic region surpassed our initial targets entering the quarter, led by 13% growth in the U.S. and 43% expansion in Japan. Our return to operating profitability reflected the combination of higher revenue, notable improvement in our gross margin and disciplined expense management."

iRobot Outlook: The Analysts Just Don’t Get It

The earnings outlook is heavily dependent on the second half of the year but robust, now the 2nd quarter results are in. The second half represents 60% of FY revenue (based on 2019 results) with much of that earned in the 3rd fiscal quarter. The 2nd quarter beat is great in that it sets the company to not only beat the consensus but to beat it in such a way that 4th quarter earnings might not even be necessary (to match the analyst projections).

The analysts are firmly neutral on this stock but, even so, we can expect a solid round of upwardly revised estimates if not outright upgrades. One reason is the 2nd quarter results, the other is the company’s guidance. Previously, iRobot was looking for a slight decline in 2020 revenue with a larger shortfall in EPS, now the company sees FY 2020 results in line with the previous year, if not a little better. I’ve not seen any analyst activity yet but I won’t be surprised if it starts today.

iRobot Technical Outlook: A Major Reversal Is In Progress

Shares of iRobot saw a lot of downward pressure in 2019 due to a slow-down in growth and concerns over its valuation. By the time COVID hit the company was well into its turnaround and shares prices were about to bottom. Since the start of the pandemic, shares have rebound from the bottom to not only recoup the Feb/Mar losses but to surpass them by nearly 100%.

On a technical basis, the price action bears the hallmarks of a strong rally and continuation pattern that could add another $30 to share prices over the next 6 months. MACD is the most telling, showing a strongly convergent bullish peak with the recent highs, but stochastic is equally bullish. Price action may pull back some in today’s session, there was some volatility in the overnight action, but the long-term outlook is bullish. If $80 doesn’t hold as support I will be very surprised.