Rebound And Reversal For Logitech International

Key Points

• Logitech had a mixed quarter, but shares are up strongly and on the verge of reversal. 
• The analysts' sentiment is at an extreme low and may rebound in the 2nd half of the year. 
• The institutions are buying the stock, helping to put a bottom in the market. 

Logitech’s NASDAQ: LOGI Q1 results were better than expected and have the stock in a position to rebound from long-term lows and confirm a reversal in the market. The move is foreshadowed by institutional activity, which has been ramping up in recent quarters. The institutions only own about 34% of the stock, but they’ve been buying at a pace of 2:1 versus sellers, which has helped to put a bottom in the market.

The trigger the market needs now is a shift in the analysts' outlook, which was at an extreme low going into the report. 

Logitech ranked 24th on Marketbeat.com’s Lowest Rated Stocks list. The 10 analysts with ratings on the stock have it pegged at Reduce, but there are signs that sentiment is bottoming. The most recent revisions include 2 downgrades, a reiterated Equal Weight and 1 upward price target revision.

Notably, 1 of the downgrades lowered its target to $70 compared to the $63 consensus figure. That, and the upward revision to $71, have the consensus figure up more than 11% since the last earnings report. The Q2 report may not spur any analysts to upgrade the stock, but it gives ample reason to believe the bottom is in. 

Logitech Has A Better-Than-Expected Quarter 

Logitech had a better-than-expected quarter, with revenue at $0.947 billion. This is down 16% compared to last year but 635 basis points better than the Marketbeat.com consensus figure. Market share gains drove revenue, although results were soft across most segments. Other and Webcams fell more than 30% YOY, while Video, Keyboard, and Headset sales fell in the 20% range as work-at-home spending recedes. 

The margin news is mixed with the GAAP margin shrinking and the adjusted widening. The takeaway is that adjusted operating income is down -25% compared to last year, leaving EPS at $0.65 or $0.18 better than expected. That’s down 12% compared to last year, but cash flow is up $275 million to reverse a loss posted in the prior year.

The increase in cash flow is due primarily to inventory reduction and cost-saving initiatives expected to continue in the current quarter. 

The guidance is equally mixed and may be viewed as cautious. The company increased its guidance for the 1st half by 410 bps at the midpoint of the range, putting it above the consensus figure.

However, the full-year outlook is weak relative to the analysts' consensus figure, which suggests additional weakening is on the way or guidance will be increased as it was for the 1st half. The market reaction suggests that investors were expecting worse. 

Logitech’s Dividend Will Help Lift This Market 

Logitech isn’t a high-yielding stock, but its 2% payout is growing above the S&P 500 average. The company has increased the payout for the last 9 years and can continue increasing for the next few years at least. The payout ratio is about 35% of the earnings outlook, and the balance sheet is a fortress.

The company has no debt and has been increasing its cash balance due to inventory normalization. The company may slow the pace of increases from last year’s 25% increase, but robust increases are expected. The stock pays out annually; it goes ex-dividend on 9/25 and is a decent candidate for Dividend Capture Strategies. 

The chart action is favorable to higher prices. The market formed a Head & Shoulders over the past year and looks ready to confirm the reversal. The price is up more than 7% in premarket action and at critical resistance at the $67 mark. If the market can sustain a move above this level, it could enter a full reversal; analysts could help that move. If not, LOGI will remain range bound at current levels.