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Logitech to Grow on Product Launches & Restructuring Efforts

Zacks Equity Research

Computer accessory company, Logitech International S.A. LOGI is enjoying numerous growth drivers, as was apparent in the company’s recent earnings reports. Logitech has an impressive streak of earnings beats, having trumped expectations for the seventh consecutive quarter.

Even for the longer time frame, Logitech's growth has been quite striking. In fiscal 2015, retail growth on a constant-currency basis was 6%, which jumped to 9% in fiscal 2016. Come fiscal 2017, the sales soared 14%.

The company’s product portfolio comprises internet video games, keyboards, audio products, interactive gaming devices and 3D controllers.

We believe the thriving cloud-based video-conferencing services, strategic product launches and restructuring actions will continue to be growth drivers. Logitech is enjoying an all-pervasive growth of its retail business, which is likely to continue, going forward. In order to further boost growth, the company is pursuing innovation and expanding its product lines to tap the high potential market for accessories.

Logitech has been able to leverage its software and go-to-market capabilities in a bid to drive market share gains. The company has manufactured innovative options, such as the fastest performing mouse and keyboard switches, as well as a wireless mouse with the longest battery life.A diverse product roster and excellent demand enables Logitech to be highly confident on its future financial outlook.

Backed by its impressive growth drivers, the company’s stock has had an impressive run on the bourse over the past one year, having appreciated 70.5% — miles ahead of the industry’s average gain of 25.5%.

The company’s most significant growth driver — gaming — now constitutes 15% of revenues. In the last three quarters, the segment has posted year-over-year growth of 37.5% (first-quarter fiscal 2018), 23% (fourth-quarter fiscal 2017), and 37.9% (third-quarter fiscal 2017). Continuous innovations andthe recent buyout of high-end headset maker ASTRO Gaming make Logitech the leader in a growing space.

Growth of Mobile Speaker segment will also likely continue on the back of impressive market traction of Ultimate Ears and Wonderboom product lines. Video Collaboration also grew 49% in the fiscal first quarter, on the back of double-digit increase from all three regions. Rising demand from companies, both large and small, for video-enabling huddle rooms and conference rooms drove sales growth of this segment. Home Control category sales also increased 47%, driven by consistent demand for smart home products.

Buoyed by the impressive results and incorporating the accretive impact of the Astro Gaming buyout, Logitech raised its full-year 2018 guidance. It now expects non-GAAP operating income in the range of $260-$270 million (earlier guided range: $250-$260 million). Also, it projects constant currency fiscal 2018 sales growth in the range of 10-12% compared with the earlier estimate of high single-digit growth.

Logitech remains optimistic that the steady traction of its product lines, as well as positive industry trends will continue to fuel growth. We believe that the thriving cloud-based video-conferencing services, strategic product launches and restructuring actions will continue to stoke this Zacks Rank #3 (Hold) company's growth.

Key Picks

A few better-ranked stocks in the broader sector include Xplore Technologies Corp XPLR, Stratasys, Ltd. SSYS and Intuit Inc. INTU. While Xplore Technologies sports a Zacks Rank #1 (Strong Buy), Stratasys and Intuit carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Xplore Technologies has a remarkable average positive earnings surprise of 102.5% for the trailing four quarters, having beaten estimates strongly all through.

Stratasys. has a robust earnings surprise history, with an average positive surprise of 67%, driven by three strong earnings beats over the trailing four quarters.

Intuit has an impressive average positive earnings surprise of 32.5% for the trailing four quarters, beating estimates all through.

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