BofA Downgrades iRobot After Roomba Maker's Stock Rally

Although iRobot Corporation’s IRBT first-quarter results are supported by recent data on strong sell-through for robot vacuums, this may not be indicative of an acceleration in the category, according to BofA Securities.

The iRobot Anlayst

John Babcock downgraded iRobot from Neutral to Underperform with an unchanged $77 price target. 

The iRobot Thesis

While iRobot’s stock rallied after the announcement of first-quarter results, there seems to be “more downside than upside risk to the shares,” Babcock said in a Friday downgrade note. (See his track record here.)

Recent data shows strong sell-through for iRobot’s products in April and May during the COVID-19 pandemic, the analyst said. The company raised its guidance for the second quarter, implying zero to 4% revenue growth.

The recent trends are not necessarily indicative of an acceleration in the robot vacuum category, and a re-rating of multiples is likely as growth rates normalize, he said. 

Near-term demand for these products will be driven by “the pace of the economic recovery and the evolution of consumer buying habits,” Babcock said.

The estimates assume iRobot will be successful in securing an extension of its Section 301 tariffs exemption, which expires in August, according to BofA. 

IRBT Price Action

Shares of iRobot closed Friday's session slightly positive at $82.23. 

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Photo courtesy of iRobot.