Logitech (NASDAQ:LOGI) Rides An Accelerating Trend To New Highs

Logitech Is A Perfect Stock For The New Age

The pandemic, as tired as I am of talking about it, ushered in a new age for many Americans. The switch to work-from-home, stay-at-home, play-at-home not only put a heavy demand on the tech industry but proved to us all that tech works. That demand is driving strong results across the tech space and no company is better positioned for growth than Logitech International (NASDAQ:LOGI).

The company doesn’t make chips, it doesn’t design computers, it’s not a cloud-server or service provider. Logitech makes all those peripheral items we need to connect to our devices, input information, capture & view imagery, as well as personalizing our workspaces, devices, and phones. The company got its first boost from first-time users and that trend is yet to run out. Now the company is benefiting from a second boost that should help juice results long into the future. Upgrades.

Logitech Smashes The Consensus And Raises Guidance

Logitech’s results are strong, very strong, and reveal underlying strength across the consumer tech space. The top-line revenue of $1.67 billion is not only up 85% from last year but it also beat the consensus by 3300 basis points or $0.420 billion. Strength was reported across all segments with continued strength seen throughout the year. Moving down the report, the company experienced a significant cost-leveraging due to increased scale that resulted in margin improvement. The adjusted gross margin came in at 45.2% or 760 basis points over last year

Moving down to the income portion of the report, cash from operations and adjusted operating income both grew substantially. Cash from operations increased by 192% over the previous year to $530 million while adjusted operating income grew 214% to $476 million. As for earnings, both adjusted and GAAP earnings beat the consensus targets by wide margins. The GAAP $2.22 beat by $1.39 while the adjusted $2.45 beat by $1.44.

Looking forward, the company is expecting strength to continue into the end of the F2021 period at least. The guidance for revenue was raised to +57% to +60% while operating income is expected in the range of $1.05 billion versus the previously guided $0.70 to $0.725 billion. The analysts are expecting a mere $405 billion for the year versus the $4.76 implied by the new guidance. Factoring in year-to-date earnings the company is expecting about $1.05 billion in FQ4 versus the analyst’s consensus of $0.820 billion and even that guidance is likely to be too low.

Logitech Is One Safe Dividend

Logitech is not a high-yielding stock at 0.85% of recent price action but the payout is very safe and there is value to be had. Regarding the distribution, the payout ratio is a very low 22% of the consensus estimate for F2021 and we know that estimate is ridiculously too low. Based on the YTD results and outlook for Q4 the payout ratio is closer to 15% and backed up by a fortress balance sheet. The company is sitting on ample amounts of cash and the hoard is growing. Total cash stood at $1.4 billion at the end of the quarter, and there is not enough debt to mention.

Regarding the value, the stock is a bit overvalued relative to the consensus at 25X earnings but once again the consensus is far too low. By our reckoning, the stock is trading closer to 16X earnings and the outlook for earnings is rosy indeed.

The Technical Outlook: Logitech Is In A Textbook Uptrend

Shares of Logitech have made a stunning and much-under-appreciated rebound from the 2020 low and that move is not over. The uptrend looks healthy and the Q3 report has price action moving higher in the premarket action. There is some resistance at the $105 level but it shouldn’t hold prices back long. Once it is broken a move to higher levels is expected. Simply speaking from the price-multiple standpoint the stock has a few handles to gain just to be on par with the broad market and this stock is more valuable than the average S&P 500 company.