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iRobot to Ride Growth Trajectory on New Contracts

Zacks Equity Research

Premier robot manufacturing company iRobot Corporation (IRBT) announced the receipt of a new contract from the Naval Surface Warfare Center, Indian Head Explosive Ordnance Disposal Technology Division. The deal, worth $7.6 million, will likely augment the revenues of the company’s defense & security robot segment. The contract is likely to stimulate profitability in the long run acting as a growth driver for the company .

The Naval Surface Warfare Center, Indian Head Explosive Ordnance Disposal Technology Division have also awarded iRobot another three-year indefinite delivery/indefinite quantity contract worth $13 million. The company will supply more MTRS robots under this contract.
 
Impact of the Contract

We believe the new military contracts can considerably increase iRobot’s chances for a positive earnings result. However, it is also true that the positive impact of such contracts might be offset by certain risks and uncertainties faced by the company.

Through the first-half of 2014, iRobot had generated maximum revenue from the sales of its home robotic business segment. However, the defense sector contracts will probably improve the surplus generated by the company’s defense and security robotic division. This segment of the company manufactures robots which perform functions like military surveillance, reconnaissance and explosive ordnance disposing. Hence, increased supply of such products will help augment the brand value of the company in the near future.

Moving Forward

iRobot designs and manufactures robots for both domestic and commercial usage. The household mobile robots of the company, such as Roomba and Scooba, help in accomplishing specialized functions such as floor scrubbing and vacuum cleaning. Also, the military robots invented by iRobot aid in increasing the efficiency of the defensive activities.

The product offerings of the company are non-imitable, rare and highly differentiated. According to the contract, iRobot will deliver the upgraded and spare parts for 46 MTRS (Man Transportable Robotic System) to the related segment of the U.S. Navy by the first half of 2015. The company had first manufactured MTRS robots after the establishment of its multi-mission iRobot 510 PackBot program.

Given the benefits of the new defense contracts and the incidence of upcoming business risks, iRobot currently sports a Zacks Rank #3 (Hold). Some other stocks worth considering in the industry include Alcoa Inc. (AA), Applied Optoelectronics, Inc. (AAOI) and Apple Inc. (AAPL), each carrying a Zacks Rank #2 (Buy).

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