Logitech Pulls Back To Attractive Levels
Logitech (NASDAQ: LOGI) was one of the biggest winners from the pandemic but those days are over. The boom in spending on peripheral technologies like keyboards, pointers, and headphones is past but the secular trends remain, which is why the analysts have begun to turn bullish on the stock once again. The price of Logitech pulled back almost 50% since the peak providing an entry too good to pass up now that it is past the post-pandemic recession. While sales fell on a YOY basis that was expected, if anything it is the guidance that will hold prices in check. The guidance was lowered for 2022, but it was lowered strictly because of sales in Russia and Ukraine, and growth is still in the forecast so we don’t think it will matter in the long run.
We haven’t seen any analysts’ commentary since the earnings report came out but the trend has definitely changed. The 5 commentaries that have come out since March 1st include 1 double upgrade to Outperform from Hold, 2 upgrades from Neutral/Hold to Buy, 1 initiated coverage at Buy, and an increased price target. That activity has the Pricetarget.com consensus rating up to weak Buy from Nuetral and we think it will move higher. The key takeaway here is that the consensus price target is over $100 and implies more than 55% of upside for the stock. Even the low price target of $73 is worth a double-digit gain and that target is trending higher as well.
Logitech Poised For Rebound
Logitech price action has been trending lower over the last year due to peaking activity, tough YOY comps, and deteriorating sell-side sentiment. Most recently, price action hit new lows on fears of fallout from Russia/Ukraine but it appears that those fears have been priced in. The company lowered its guidance by about 200 basis points leaving revenue growth at up 2% to 4% for the coming year which we don’t think is too bad considering the state of the economy and the long-term comps. The $1.23 billion in Q4 revenue may have been down 20.1% from last year but up more than 73% versus two years ago with YOY growth back in the picture.
The worst news in the report is that GAAP income fell 56% versus last year and the first reaction may be that inflation is damaging the margin. The reality is that investments in growth are to blame and are part of the longer-term strategy. The key takeaway here is that margins contracted less than expected and aided revenue strength to drive better-than-expected bottom-line results. On the bottom line, the $0.81 in GAAP earnings is down from last year’s $1.45 but beat the Pricetarget.com consensus by $0.11.
Logitech Is A Logical Choice For Dividend Growth Portfolios
Logitech is a logical choice for dividend growth portfolios and investors with a long-term time horizon. The stock yields about 1.5% which isn’t great by itself but it comes with a very healthy outlook for growth. The company has a fortress balance sheet and is paying out less than 25% of its earnings on a TTM basis so there is ample room in the numbers for an increase. The company has also been increasing the payout for the last 5 years, and at a 10.5% CAGR, so there is precedent as well. In our view, the company could sustain a double-digit CAGR for several years at least.
The Technical Outlook: Logitech Is Overextended
Price action in Logitech has been moving lower for nearly a full year and now it looks like price action is overextended. Not only have multiple bullish candles appeared at the new lows but the indicators are diverging from those lows and setting up for bullish signals. Assuming the market follows through on these signals, we would expect to see Logitech begin gaining traction at the current levels and then momentum once it starts moving higher. If not, price action may be range-bound at these levels until there is more clarity in the global economic picture.
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