Logitech Down to Neutral


On Dec 20, we downgraded computer peripherals company Logitech International S.A. (LOGI) to Neutral, based on its weak balance sheet and a consistent decline in the desktop-PC business, which is declining in double digits.

Why the Downgrade?

Estimates for Logitech have been declining ever since it reported second quarter 2014 results on Oct 24. Though the company’s revenues and EPS surpassed the Zacks Consensus Estimate, its operating cash flow decreased by more than 254% in the quarter. The cash and cash equivalents dipped about 11.7% year on year. Moreover, the company is anticipating additional restructuring costs worth $13 million in 2014 to develop its LifeSize business and reposition its product portfolio.

Following the release of second quarter results, the Zacks Consensus Estimate for the third quarter has gone down 6.3% to 15 cents per share. The company now has a Zacks Rank #3 (Hold).

Cause for Concern

The rising trend of smaller mobile computing devices such as tablets and smartphones with touch interfaces and declining popularity of desktop PCs have been continuously affecting the profits and revenues of Logitech over the past four to five quarters. Going forward, the company expects this business to further decline by 10% due to reduced demands for desktop PC and its accessories. In the last reported quarter, company experienced headwinds in PC-related categories and peripherals due to a double-digit drop in the sales of desktop PCs. 

On top of this, Logitech operates in a highly competitive market characterized by short product life cycles, constant new product introductions, and rapidly changing technology innovations. Also, evolving customer demands, and aggressive promotional and pricing practices are making it difficult for the company to counteract to competitive pressures.

Other stocks to Consider

Other companies in the industry which are worth considering at the moment include Alps Electric Co. Ltd. (APELY), Analogic Corporation (ALOG) and Stratasys Ltd. (SSYS). Alps Electric carries a Zacks Rank #1 (Strong Buy), while Analogic Corporation and Stratasys Ltd have a Zacks Rank #2 (Buy).

Read the Full Research Report on SSYS
Read the Full Research Report on LOGI
Read the Full Research Report on APELY
Read the Full Research Report on ALOG

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