Logitech Is Still A Logical Choice For Dividend-Growth Portfolios Logitech (NASDAQ: LOGI) is one of the more appealing post-pandemic plays to us for many reasons. Not only is the company benefiting from COVID-related trends but it is also benefiting...

By Thomas Hughes

This story originally appeared on MarketBeat

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Logitech Invests In The Future

Logitech (NASDAQ: LOGI) is one of the more appealing post-pandemic plays to us for many reasons. Not only is the company benefiting from COVID-related trends but it is also benefiting from strong secular trends, sustaining YOY growth in the face of double-digit comp, paying a very safe dividend, and investing in the future. Yes, the company is experiencing the same headwinds as everyone else but operations are still within target ranges and delivering strong cash flow and free cash flow. In our view, the recent pullback in prices is overblown and setting this company up for a rebound that could be worth upwards of 40% for investors.

Logitech Slips On Mixed Results

Logitech had a fantastic quarter despite the threat of rising costs, material shortfalls, and margin pressure. The only thing that can be said to be bad about the report, however, is the fact earnings and earnings alone missed the Marketbeat.com consensus estimates. On the top line, the $1.31 billion in consolidated revenue is up 4.0% over last year and last year the company grew 75%. On a two-year basis, the revenue is up more than 82% and shows no signs of abating. If we didn't mention it before, Logitech manufactures and markets a wide range of peripheral devices for electronics like keyboards, mice, speakers, and headphones and those devices are still in high demand.

On a segment basis, weakness in cams, tablet accessories, video, and headsets (which all saw high-double-digit growth last year) was offset by strength in keyboards, pointers, and gaming equipment. On a regional basis, sales in the U.S. were flat while EMEA grew 3% and APAC a more robust 12%. Moving down to the earnings portion of the report the details get a little dirty but there are some mitigating factors. The company's AGM shrank by 370 basis points due to higher cost-of-goods sold including freight, materials and labor costs but remained with the company's long-term target range. The operating income, both GAAP and adjusted, fell 40% but mostly due to a 60% increase in marketing and a 30% increase in R&D. We don't like to see earnings miss but marketing and R&D are acceptable reasons because they should result in higher sales down the road.

Looking forward, the company reaffirmed its guidance for revenue and earnings at the previously stated range. This is calling for full-year growth in the range of flat to +/- 5% which we view as a wide range given this year's YTD strength. The comps are going to get tougher before they get easy again but the two strongest quarters of the fiscal year are still ahead. In our view, Logitech should produce at least flat to slightly higher YOY revenue if not growth in the mid-single-digit range.

Logitech's Dividend Is Safe

Logitech pays a small but growing 1.12% yield and it is a very safe yield at that. The company reported negative cash flow for the quarter but that is due to ad-spend and R&D, not operational weakness, and the balance sheet is an absolute fortress. The company net-cash with very low leverage and ample coverage so we have no fear of a dividend cut or suspension and every reason to think there will be another dividend increase next year. Logitech pays out annually and only recently made the last distribution.

The Technical Outlook: Logitech Is Ready To Rebound

Shares of Logitech are down about 40% from the last high and look ready to rebound. The post-earnings price action has the market confirming support at a key level and moving higher in today's action. Support and reversal are also indicated by the MACD and stochastic which are both showing clear divergence from the new low. Assuming price action is able to maintain its footing and regain the upper side of the short-term moving average we would expect to see the stock trend higher into the end of the year. If not, shares of Logitech may wallow near these low levels until another catalyst emerges.

Logitech Is Still A Logical Choice For Dividend-Growth Portfolios

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