On Dec 20, we downgraded computer peripherals company
Logitech International S.A.
) to Neutral, based on its weak balance sheet and a consistent
decline in the desktop-PC business, which is declining in double
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.
). Alps Electric carries a Zacks Rank #1 (Strong Buy), while
Analogic Corporation and Stratasys Ltd have a Zacks Rank #2
ANALOGIC CORP (ALOG): Free Stock Analysis
ALPS ELECTRIC (APELY): Get Free Report
LOGITECH INTL (LOGI): Free Stock Analysis
STRATASYS LTD (SSYS): Free Stock Analysis
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