Premier robot manufacturing firm iRobot Corporation (IRBT) is scheduled to release its third-quarter 2014 results after the market closes on Oct 21. The company had delivered an average earnings surprise of 10.42% in the trailing four quarters, matching the Zacks Consensus Estimate in the last reported-quarter. Let’s figure out how things are shaping up before the third-quarter earnings announcement.
Factors to Influence Q3 Results
iRobot has experienced a steady rise in gross revenue on the back of its high brand value and superior non-imitable product offerings. In order to offer differentiated services within the competitive industry and enhance its market share, the company invests large sums of money in R&D for continually innovating products.
The Canadian Department of National Defense (DND) has recently awarded a multi-year contract to iRobot. Valued at $ 9.6 million, the contract will likely boost the revenue of its Defense and Security Robots segment. Under the contract, the company will offer new 20 iRobot 510 PackBot CBRN Recce Systems by Apr 2015. iRobot has also secured other productive innovation contracts for its upcoming quarters. Backed by such new product offerings, the company expects to generate revenues within $133–$136 million and earnings of 32–35 cents per share in 2014.
Rise in per capita discretionary spending and improved living standards have largely augmented the demand for consumer robotics product. On the back of growing demand for its Home robotics products, iRobot expects bullish earnings.
However, iRobot faces certain issues that might adversely influence its third-quarter earnings. Prominent new robotic vacuum cleaner brands such as Samsung and LG Electronics are now lowering the market share of iRobot’s Roomba. Moreover, the company experiences a high level of industry uncertainty and often faces problems in correctly gauging its demand. Also, the company needs to constantly invest large sums of money for technological innovations. At the same time, iRobot’s trade is considerably dependent on the U.S. defense and public regulatory authorities. Fiscal policies of Federal government can sharply revise the revenue and profitability estimates of the company downwards. Moreover, being a multinational entity, the company is frequently exposed to exchange rate and currency volatilities.
Earnings Whispers
Our proven model does not conclusively show that iRobot is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, #2 or #3 for this to happen. That is not the case here as we will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate of 33 cents per share, is currently pegged at 0.00%. This indicates in-line earnings for the stock.
Zacks Rank: iRobot’s Zacks Rank #3 (Hold), when combined with a 0.00% ESP makes surprise predictions difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.
Other Stocks to Consider
Here are some companies in the industry that investors may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Abaxis, Inc. (ABAX) with Earnings ESP of +4.55% and a Zacks Rank # 2 (Buy).
Alaska Air Group, Inc. (ALK) with Earnings ESP of +1.44% and a Zacks Rank # 2 (Buy).
Arch Capital Group Ltd (ACGL) with Earnings ESP of +2.06% and a Zacks Rank # 2 (Buy).
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