I have lately made plays on UA and CMG earnings and done well on those. I got smacked a little with CSTR but that's another matter. iRobot is a long time favorite of mine. A company I am not always involved in but one that I always keep an eye on.
The reasons have little to do with their consumer robotics division, even though without question there will be more and more opportunities for regular people to buy robots to do tasks they don't like to do - clean the floor, clean the pool, eventually look in on Grandmom at her house while you're at work. And making a product like the Roomba, in the long run, helps you build a brand identity in a field that otherwise would have no stand-out brands.
As many of you know a growing slice of iRobot's revenue actually comes from military grade robots. These are not involved in offensive actions, primarily they are scout robots that peek around corners, enter buildings in advance of soldiers, or detect and disarm IEDs.
I came across this article of note recently
http://blogs.forbes.com/brianwingfield/2010/10/26/irobot-ceo-doesnt-fear-de...
Here's the crux of the bullish case I would echo, as explained by CEO Colin Angle, an MIT grad who co-founded iRobot 20 years ago:
What happens when the military starts cutting back on some of its spending? What does that mean for iRobot?
As one looks at what technology is going to impact the military in the near future and what can we afford—given budgets being were they are and the fact that the supplementals currently funding a lot of the buying are going away—it really gets down to bang for the buck. These robots save lives almost every day right now. And they’re inexpensive relative to a lot of the other things that [the military can buy].
Basically, robots are the one thing that the military buys that are not only immune to cuts in spending (or a more narrow scope for our military in the future) but could actually benefit from them. They save lives and are comparably cheap.
I also saw yesterday from a press release that they have received 4.4M in international PackBot orders in the first quarter.
“The emerging international market provides an important growth opportunity for iRobot, and one in which we invested heavily in 2010. We think that over time, sales of the iRobot PackBot and Small Unmanned Ground Vehicle (SUGV) into this market could total 15 to 20 percent of our government and industrial product revenue." ... The company has delivered its government and industrial line of robots to more than 25 countries, seven of which were new customers last year.
It only makes sense that our allies would be interested in the line of robots heavily favored by the U.S. military.
Sometimes stock picking is all about predicting the future. And I see a future where consumer robots are increasingly common and every advanced military in the world look to offload many of their more dangerous tasks to robots, with iRobot a clear beneficiary.
In terms of earnings, which will come on Thursday morning (Feb 10)... The estimates for iRobot have been too low for several quarters in a row and a quick glance at the numbers leads me to believe this quarter is no different. From Q3 2009 to Q3 2010 they raised earnings over 100% - .10 to .27. Yet with Q4 2009 earnings at .20 the consensus estimate for Q4 2010 is only .14 which is pretty inexplicable to me.
Read the transcript of Q3's earnings call at SeekingAlpha which highlights a very healthy set of numbers. Year over year they have raised revenue over 30%, earnings by almost 100%, and gross margin is increasing as well.
http://seekingalpha.com/article/233083-irobot-ceo-discusses-q3-2010-results...
With a pretty low bar in terms of expectations for earnings, and a very under-the-radar stock, it seems quite likely the stock will clear $30. I am betting on this via March calls at the 30 strike. Confidence 7.
Image courtesy http://www.irobot.com/gi/ground/510_PackBot/