Company Reports

No-moat Logitech reported strong fiscal third-quarter numbers, with sales broadly in line but gross/operating profits and margins handily beating the FactSet consensus. Furthermore, fiscal 2024 guidance was raised above consensus expectations for non-GAAP operating income. Despite the surprisingly positive results, shares were down around 10% intraday. We surmise the markdown was due to Logitech’s cautious comments on fiscal 2025. While not providing specific numbers, commentary implied minimal growth with high macroeconomic uncertainty in fiscal 2025, while consensus was looking for a solid 5% increase going into the quarter. In contrast to the market, we’re raising our fair value estimate 9% to $60 (CHF 52.50) as our near-term estimates have proven to be too conservative. At current levels, we still think the shares are overvalued.

Logitech, based in Switzerland, is a leader in computer peripherals such as mice, keyboards, and webcams. The company has expanded from being primarily a standard mouse and keyboard producer to new categories such as high-performance gaming products and video conference room cameras, which are the key drivers of its future growth profile.

No-moat Logitech reported strong results in its fiscal second quarter, beating the FactSet consensus on revenue and operating income. Fiscal 2024 guidance was lifted meaningfully on non-GAAP operating income. Consequently, the shares were up around 11% intraday. We are currently updating our model for the latest developments but do not anticipate a material change to our $55 (CHF 50) fair value estimate. At current levels, the shares look overvalued.

We’re initiating coverage of Logitech with a no-moat rating and $55 (CHF 50) fair value estimate. Our fair value estimate implies a 2023 enterprise value/EBITDA multiple of 16.5 times and a P/E ratio of 22 times. Our estimates are broadly in line with FactSet consensus, but we think the shares currently look overvalued. We surmise the market is betting that high margins in the video collaboration segment are more durable than our expectations.

Logitech, based in Switzerland, is a leader in computer peripherals such as mice, keyboards, and webcams. The company has expanded from being primarily a standard mouse and keyboard producer to new categories such as high-performance gaming products and video conference room cameras, which are the key drivers of its future growth profile.

We are no longer providing equity research on Logitech International LOGI. We provide broad coverage of more than 1,700 companies across more than 140 industries, and adjust our coverage as necessary based on client demand and investor interest.

Logitech is poised for top-line improvement coming out of a cyclical downturn, but the firm still contends with tough rivals and cutthroat pricing.

-Logitech is poised for top-line improvement coming out of a cyclical downturn, but the firm still contends with tough rivals and cutthroat pricing.

Logitech is poised for top line improvement coming out of a cyclical downturn, but the firm still contends with tough rivals and cutthroat pricing.

Logitech is poised for top line improvement coming out of a cyclical downturn, but the firm still contends with tough rivals and cutthroat pricing.

Logitech LOGI reported weak, though not entirely unexpected, financial results July 23 in its seasonally soft first quarter. Overall results are in line with our estimates, and we are maintaining our fair value estimate. Sales declined 35% versus last year, with particular weakness in Europe and the Americas, across virtually all of its product categories. Much of the decline was attributed to retailers reducing inventory levels to conserve cash during this uncertain economic climate. Sell-through, the actual change in sales at the retailer level, is a better indicator of real-time consumer demand, and performed much better for the company, declining in the single digits in many of the company's major markets. Because most of the company's retail partners have reset their inventory levels to the lower consumer demand environment, future sales for the company will more closely reflect changes in end-consumer demand, which is holding up relatively well.

Logitech International has grown by identifying, developing, and marketing peripheral products in various high-technology markets. Much more than a computer mouse and keyboard company, Logitech has grown by acquiring and developing consumer-friendly products such as audio headsets and speakers, webcams, gaming devices, and advanced remote control devices.

Logitech's LOGI financial performance went from bad in the third quarter to worse in the fourth quarter. Sales declined 32% from the previous year, accelerating from the previous quarter's 16% decline. The weakness was across the firm's entire product line and reflects a dismal consumer demand environment as well as retail distribution partners delaying orders as they sell out inventory. Profitability also reflected the softening demand, as both gross and operating margins declined versus last year and the previous quarter. We believe Logitech's current weakness is entirely a reflection of the economic environment and not due to a worsening competitive position. The company remains a solid cash generator and has a strong balance sheet with more than $2.70 per share in net cash. Nevertheless, the current weakness and near-term outlook were worse than our expectations, and we are placing the company under review while we update our long-term assumptions.

For a company that once boasted 34 straight quarters of double-digit revenue growth, Logitech's LOGI third-quarter report was a cold shower. Total sales declined 16% from last year, with weakness throughout the company's broad product line. Keyboards, pointing devices, gaming consoles, and remote control devices all declined in excess of 20% from last year. The only categories that showed growth were audio and video products, boosted in part by recent acquisitions. We believe Logitech will face ongoing sales weakness in its business throughout 2009 as well as lower gross margins, since it is offering incentives to retailers to clear its growing inventory.

Logitech LOGI announced Monday that it has withdrawn its previous sales and operating income targets for fiscal 2009. We are maintaining our fair value estimate, however, as we had already lowered our fair value estimate last fall amid concerns about slowing consumer spending. The company also announced that it is cutting about 15% of its salaried workforce in an effort to reduce operating costs. We believe the lower costs and approximately $500 million cash and no debt will enable the company to weather the current economic turmoil. We will await additional insights from Logitech in its third-quarter conference call Jan. 20 to determine whether more caution is warranted on the stock.

Logitech International has grown by identifying, developing, and marketing peripherals in high-technology markets. Much more than a computer mouse and keyboard company, Logitech has grown by offering products such as consumer-friendly peripherals across PC audio and video, MP3, gaming, and home entertainment platforms.