Analysts Cautious On LogMeIn: 'The Stock Will Likely Remain A 'Show Me' Story'

Shares of LogMeIn Inc LOGM are dipping toward their lowest level for the year after the SaaS and cloud-based remote connectivity provider forecast below-consensus first-quarter earnings per share.

The Analysts

Oppenheimer analyst Shaul Eyal downgraded LogMeIn from Outperform to Perform. 

RBC Capital Markets analyst Matthew Hedberg maintained a Sector Perform rating and lowered the price target from $90 to $85.

Oppenheimer Stays On Sidelines 

LogMeIn reported with a beat on key metrics such as revenues, adjusted EBITDA and EPS in Q4, while cash flow from operations trailed expectations and renewal rates stabilized around Q3 levels, Eyal said in a Friday note.

The company is investing $75 million in FY19, targeting long-term growth of its main engines, the analyst said. LogMeIn could face potential near-term activism, given the recent stake acquisitions by both Elliott Management and Thoma Bravo, he said. 

Oppenheimer attributed the downgrade to the following:

The investment cycle LogMeIn has embarked on to in order to achieve double-digit growth by 2021.

Significant downward revisions to 2019/2020 EPS estimates to account for the higher investments.

Uncertainty concerning whether the company's investments are due to market strength or the need to defend an uncertain future.

"While we acknowledge this rating change could be wrong if an activist steps in, we cannot recommend the shares strictly on this basis," Eyal said. 

RBC Remains Cautious In Near-Term 

LogMeIn's results were good, but investor focus will rest on the plan to boost investments in areas that could help accelerate revenue back toward double-digit organic growth, Hedberg said in a Thursday note. 

These investments will take a significant bite out of profitability for the next two years, the analyst said. 

"While the idea of accelerating organic growth sounds good, the stock will likely remain a 'show me' story as investors will likely remain skeptical and want to see if the increased investments are justified." 

Although the idea of double-digit growth paired with better margins in the future is attractive, RBC said it remains more cautious in the near-term.

The Price Action

LogInMe shares were up 0.16 percent at $83 at the close Tuesday. 

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