Updated Research Report on Logitech - Analyst Blog

On Mar 6, 2014, we issued an updated research report on Logitech International SA LOGI. The company had earlier reported better-than-expected quarterly results. Moreover, it witnessed strong growth in tablet accessories across all its operating regions in the Americas and Asia except EMEA (Europe, the Middle East and Africa).

Logitech has delivered positive earnings surprises in each of the last four quarters, with an average beat of 127.9%. Moreover, Logitech delivered robust earnings in the third-quarter of fiscal 2014 which not only surpassed the Zacks Consensus Estimate but also increased 84% on a year-over-year basis.

On Mar 7, 2014, management also provided an encouraging outlook for fiscal 2014 and 2015. Logitech expects results in fiscal 2014 to come in above the higher end of its previously guided range. Hence, pro forma operating income is estimated at $125 million, the upper end of the previous guidance of $120–$125 million on sales of $2.1 billion.

For fiscal 2015, Logitech expects to generate revenues of $2.16 billion and pro forma operating income of $145 million, reflecting a significant increase from the earlier guidance (provided in May 2013) of $2.1 billion and non-GAAP operating income of $90 million.

The company's cost-cutting and restructuring initiatives are reaping expected benefits. It implemented measures like staff reduction and revamping the product portfolio across all its businesses, especially its LifeSize business which is showing a healthy improvement earlier than expected.

The company's three-year turnaround plan is designed to reduce costs while driving up profits and margins significantly. In the third quarter of fiscal 2014, Logitech successfully reduced operating costs to maintain its operating profit margin at 7%.

Per its turnaround plan, Logitech has been working on its core business structure including its designing, manufacturing and distribution system to improve its operational efficiency significantly. In the third quarter, the company's adjusted operating expenses went down for the first time in a five-year period. Despite the decline, the company reported 18% sequential growth in revenues reflecting the success of its operational execution. 

Further, the company's endeavor to return cash to its investors in the form of dividend payments also boosts investors' confidence.

Logitech currently carries a Zacks Rank #1 (Strong Buy).

Key Picks from the Sector

Other stocks that are worth considering in this sector are Hewlett Packard HPQ, Computer Sciences Corp. CSC and LogMeln, Inc. LOGM, all three of which carry a Zacks Rank #2 (Buy).