Why Shares of iRobot Climbed


Even as the wider market retreated, shares of iRobot opened up more than 10% on Tuesday. Why the optimism? Let's take a look.

New executive, better numbers
First, iRobot announced the appointment of Alison Dean as its new CFO. For her part, Dean left 3Com to join iRobot in 2005, just before its IPO, to help prepare the company for the public market.

According to the press release, Dean is replacing John Leahy, "who is stepping down after four years to join a late-stage private company." If one thing's for sure, it's that Leahy's departure doesn't appear to be a sign of greater troubles to come. At the end of iRobot's press release, the company also raised its earnings guidance "based on strong quarterly results to date in both [its] Home Robot and Defense & Security business units."

When all is said and done in the first quarter of 2013, then, iRobot now expects revenue between $102 million and $104 million, earnings per share of $0.16 to $0.20, and adjusted EBITDA of $10 million to $12 million.

So how can iRobot be so sure it'll outperform after missing expectations for the past two quarters? Apparently, the company has not only seen "strong sell through both domestically and overseas," driving sales of its home robots, but it also boasts a strong first-quarter backlog for its recently right-sized D&S business.

Of course, weary long-term investors must be happy iRobot is finally throwing them a bone, especially when we consider that the robot-maker's subpar third- and fourth-quarter 2012 earnings resulted in single-day drops of 19% and 12%, respectively.

Now are you convinced?
That said, this is exactly why I've been pounding the bulls' table to buy shares of iRobot over the past few months.

In fact, last month I noted that iRobot's fourth-quarter loss was significantly better than both management and analysts expected, largely on the heels of lower expenses related to its recent acquisition of competitor Evolution Robotics and costs associated with restructuring the D&S segment. As a result, with the stock trading just above $20 per share at the time, I asserted that "iRobot's losses won't last forever, and today's drop is the perfect chance for opportunistic investors to buy."

Then just two weeks ago, I wasted no time voicing my approval for iRobot's announcement of a new $25 million share-repurchase program. I saw the buybacks both as an "encouraging sign that all is truly well" with the company and as a significant vote of confidence from management.

With this in mind, it should come as no surprise that the consumer division is doing well; after all, management already told us last quarter that they expected consumer robot sales to grow another 20% in 2013, representing around 90% of total sales for the year.

What does come as a pleasant surprise, however, is the strong backlog in the D&S business -- the struggles of which are a primary reason shares of iRobot still trade 35% below their early 2012 highs. As an aside, I'm guessing iRobot's new and improved guidance is no coincidence, considering the company was recently awarded a $14.4 million contract to supply its awesome FirstLook "throwable" robots to the U.S. military.

Like a football, only better. Source: iRobot.

What's more, investors should be thankful for unpredictable defense budgets, which in the end had a net positive effect on iRobot. Because of its past struggles and thanks largely to its efforts to diversify the business further into the global consumer market, iRobot stands nicely positioned to succeed with or without the support of its market-leading military bots. Now that expectations have been adjusted, any government business iRobot is able to secure seems like icing on the cake.

Going even further, part of iRobot's diversification efforts also involved expanding into the health-care segment with its recently announced RP-VITA medical telepresence robot, which was jointly developed with health-care specialist InTouch Health and based on iRobot's ground-breaking Ava platform. As I wrote in January, RP-VITA is poised to benefit from its recent FDA approval, reasonable cost structure, and positive changes in legislation, which will boost federal support for telemedicine services. If the RP-VITA platform can succeed in the challenging medical arena, then it could effectively open the floodgates for iRobot to expand its reach into countless other related markets.

Foolish final thoughts
I've said it before, and I'll say it again: Given iRobot's massive market potential, this is one innovative company whose stock I intend to hold for decades.

In the end, its recent tagline sums things up nicely by asking, "iRobot, do you?"

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The article Why Shares of iRobot Climbed originally appeared on Fool.com.

Fool contributor Steve Symington owns shares of iRobot. The Motley Fool recommends Intuitive Surgical and iRobot and owns shares of Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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