Shares of iRobot (IRBT) are under pressure on Wednesday after Raymond James analyst Brian Gesuale downgraded the stock to Underperform, telling investors that he thinks Wall Street models are not reflecting the beginning of the "meaningful commoditization" of robotic vacuums.
SELL IROBOT: In a research note to investors, Raymond James' Gesuale downgraded iRobot to Underperform from Market Perform as he believes other analysts have been missing the beginning of a meaningful commoditization cycle across the robot vacuum category. The analyst also argued that the premium multiple that iRobot has enjoyed over the past three years will be swept toward a market multiple amid growth rates and profits deceleration and as its workhorse, the Roomba, “finally feels fatigue” after 17 years of tireless service.
Gesuale highlighted that competitor Shark has entered the high end of the market with mid-market prices. While it is not the first, nor will it be the last, competitor in the space, Shark is "priced aggressively," while providing competitive technology, suction and bin evacuation features, he said. Overall, the analyst’s Underperform rating reflects his view that iRobot has downside of 30% or more.
CHALLENGING YEAR, COMPETITION: On Friday, Piper Jaffray analyst Troy Jensen lowered his price target for iRobot to $64 from $75 ahead of the company's third quarter results on October 23 and reiterated a Neutral rating on the shares. The analyst argued that 2019 has shaped up to be a "challenging year" for iRobot, with increased tariffs resulting in higher average selling prices and now a "new, formidable competitor" in Shark at the higher end segment of the market. While the fourth quarter is typically a "slam dunk quarter" for the company, this year will be more challenging, he contended, adding that he prefers to take a "wait and see approach" with respect to the stock.
PRICE ACTION: In morning trading, shares of iRobot have dropped about 8% to $52.84.