iRobot: Good robot, bad robot
In the movie “I, Robot,” most of the androids in the Will Smith flick are good, serving their human masters even to the detriment of their own safety. But one robot develops a sense of self-preservation that worries Smith’s character, a cop who doesn’t trust the technological wonder to do no harm.
At the company iRobot Corp. (Nasdaq: IRBT) (which takes its name from the same Isaac Asimov book), an army of automated autonomous robots serves the military selflessly, to the point of letting themselves be blown up in order to prevent improvised explosive devices (IEDs) from doing the same to U.S. soldiers in Iraq and Afghanistan.
It’s the domestic robots that are not serving shareholders so well. The better-known consumer division at the Massachusetts company produces the Roomba, a disc-shaped vacuum-cleaner robot on wheels that can slip under sofas while cleaning the floor.
The consumer division currently accounts for about 60% of the company’s revenues but it's an inconsistent performer. On the whole, second-quarter revenues came in at $47 million, up from $34.6 million a year ago, slightly beating Wall Street expectations. Earnings per share matched the Wall Street consensus with a loss of $0.20, compared with a $0.05 loss a year earlier. However, the consumer division fell short. A report from Raymond James & Associates summed up the quarter by noting that “strong government sales mask the struggling home robot business.”
The stock price has largely acted like a Roomba falling down a flight of stairs since going public in November 2005 at $32. It peaked at about $38 the following January, then zig-zagged its way down to an all-time low of $12.76 in February of this year. It’s currently enjoying another surge, now trading at about $22. Its market cap is $525 million, a heavy valuation of about 54 times estimated 2008 earnings.
It’s the only pure-play robotics firm, but competes with giants such as Garmin LTD (Nasdaq: GRMN), trading at about 26 times 2008 earnings, or Northrop Grumman Corporation (NYSE: NOC) at 18 times 2008 earnings. But most analysts are cautiously optimistic that the stock has finally hit the ground floor this time and will continue its rise.
iRobot’s technology gives it a big advantage. Invented by MIT researchers, it enables the robots to act autonomously, not with a human-like brain, but with something more akin to the brain of an ant, a much more achievable goal. Rather than planning out a route, they simply head out in a random direction, maneuver around obstacles when they encounter them, and return to their charging units without any instructions from their owners.
The Roomba has made the company famous, with over two million sold since they were introduced in 2004. iRobot also sells Scooba floor washers, Verro pool cleaners and Dirt Dog shop floor cleaners (which can suck up those nuts and bolts dropped on the floor), ranging in price from about $300 for the basic Roomba to about $1,000 for the fanciest Verro. Next month, iRobot will introduce two new consumer robots. The company has not yet said what those robots are, but has indicated they are new categories of domestic devices.
The same intelligence guides the company’s military robots. The PacBot line, for example, is a small, tank-like robot that is used in Iraq and Afghanistan to search the terrain ahead of soldiers. Mounted with still cameras, live video cameras, or a robotic arm, it can report on what’s ahead, explode improvised explosive devices (IEDs) and land mines or retrieve hazardous materials. It has sold over 1,000 PacBots at $50,000 to $115,000 apiece. iRobot is also co-developing a robotic military truck with Deere & Co. (NYSE: DE), called R-Gator, to act as an unmanned scout and munitions carrier. Police departments in Los Angeles and Minneapolis are using PacBots in their bomb squads, and iRobot is halfway through a $50 million contract with the U.S. Army’s Future Combat Systems program, for which it is developing new military robots.
iRobot has squeezed out an annual profit for the last three years with a combination of quarterly gains and losses in each year, and analysts expect it to do so again in 2007 and 2008. Raymond James estimates the company can hit $0.15 per share in 2007 and $0.21 per share in 2008, compared with $0.14 per share in 2006, based on demand for a new Roomba model just introduced, the new mystery robots, and continued growth in the military sector. Raymond James has a neutral “Market Perform” rating on iRobot.
Analyst Alex Hamilton at Jesup & Lamont is looking primarily for strong growth in the military and industrial division. He projects that group will account for 43% of revenues next year, compared with 40% in 2006. He’s projecting EPS of $0.12 this year but $0.35 in 2008. His optimism is based on the assumption that the military and emergency response markets are beginning to accept the new technology and will increasingly make robots a significant part of their arsenal. “This is paradigm-changing technology,” he says. “It’s a trend that’s starting to catch on.” His target price is $24.
With new domestic products about to hit the market and rising military budgets looking increasingly for new technology, this company’s robots could end up serving not only their human owners, but the company’s shareholders as well.
About the Author
Richard L. Brandt is a journalist and author with more than 20 years' experience covering science, technology and business.
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