IRobot Signs Deal With MSI To Secure Proprietary Rights

Premium appliances’ company, iRobot Corporation (NASDAQ:IRBT) recently settled a confidential agreement with Micro-Star International Co., Ltd. ("MSI") to settle matters related to patent dispute.

Over the last six months, shares of this Zacks Rank #3 (Hold) stock yielded a return of 39.5%, outperforming 5.7% growth recorded by the industry.

Notably, the stock’s projected earnings per share (EPS) and sales growth rate for 2017 are currently pegged at 3.6% and 27.2%, respectively.

iRobot recorded an outstanding average positive earnings surprise of 100.1%, beating estimates in each of the trailing four quarters.

Inside Story

iRobot’s portfolio of investments calls for progression of innovation and increased business internationalization over time. In 2016, the company rolled out its unique Roomba 960 robot, outspreading visual navigation, mapping and cloud connectivity to a large number of end users across the globe. In the latter half of the year, the company further equipped its consumer product line-up with the Braava jet robot. In addition, the launch of wi-fi enabled Roomba 890 and 690 robots in May were notable product roll outs of 2017.

Nevertheless, iRobot believes its commercial success is largely dependent on the hold of proprietary technology, capability of employees to continue with further innovation, as well as their intellectual skills. Thus, in order to protect proprietary rights, iRobot strongly depends on copyrights, trademark, patents and confidential agreements.

Per the above discussed agreement, MSI will exit the global robotic cleaning industry and also provide a compensation fee to iRobot. The monetary value of the compensation and remaining terms of the settlement remain undisclosed.

MSI is a Taiwanese component and computer manufacturer, worth $3 billion. iRobot’s confidential deal with MSI marks the first success this year secured in enforcing initiatives for the protection of intellectual property.

Our Take

iRobot is poised to grow on the back of strong innovation, sturdy hold on proprietary rights, elevated sales and strategic inorganic moves. On Jul 25, 2017, it raised its revenue guidance for full-year 2017 from $780-$790 million to $815-$825 million. Also, the company’s full-year earnings guidance has been revised upward from $1.45-$1.70 per share to the $1.80-$2.00 per share range.

However, we believe dynamic nature of the technology market, stiff industry rivalry and huge dependence on single-source contract manufacturers might limit iRobot’s near-term prospects.

Stocks to Consider

Better-ranked stocks in the sector are listed below:

AGCO Corporation (NYSE:AGCO) has an average positive earnings surprise of 39.70% for the last four quarters and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Altra Industrial Motion Corp. (NASDAQ:AIMC) , which holds a Zacks Rank #2 (Buy), generated an average positive earnings surprise of 16.95% over the trailing four quarters.

Applied Industrial Technologies, Inc. (NYSE:AIT) , another Zacks Rank #2 stock, pulled off an average positive earnings surprise of 10.10% during the same time frame.

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