Logitech Demand Keeps It a Buy
Logitech International S.A. (LOGI) reported revenues for the fourth quarter of 2008, which were better than expected although earnings were below our estimates due to write-down of value of remaining CDOs. The company delivered good quarter in terms of revenues despite weaknesses in its Cordless Keyboard and Gaming segments.
There was strong demand for Harmony remotes and pointing devices combined with good traction in original equipment manufacturer. Gross margins remained at a high level for the company reflecting ongoing product cost reductions and supply chain efficiencies. We now estimate that the company will continue to grow revenues and GAAP EPS by 15.0% and 10.1% respectively in 2009 over 2008 figures.
We expect the company to continue to take advantage of the leveraging of its cost efficiency, and our estimates may prove conservative if the audio, video and console gaming segments rebound in 2009. The company has drafted a three-point strategy to shore up its video and webcam segment which includes product innovation, in-store customer prospecting and leveraging partnerships.
The company has also launched a series of new products at recent the CES Innovations awards presentation. Most of Logitech's products sell for under $100, which makes them attractive for impulse buying and gifting. The company aims at affordable luxury price points and typically offers a range of products in a line to service the high and low ends of each market niche. It is for these reasons that we continue to rate shares of LOGI a Buy.
After adjusting our model, we now expect the company to earn $1.64 per share in fiscal 2009 from our previous $1.70 estimate which includes stock-based compensation, but excludes the one-time losses from CDOs, and we have fixed a price target of $38.00 over the next six-months. This gives us a forward P/E slightly above 23.1x our fiscal 2009 earnings estimate, which we now believe is reasonable. We expect LOGI to continue to return over 20% on its equity for the next several years.
Polycom Valuation Supported
Polycom, Inc. (PLCM), a leading provider of voice/video conferencing solutions, announced mixed financial results for its second quarter fiscal 2008. Business enterprises on a global basis are facing restrictive travel budgets as economic weakness is evident. Under this scenario, Polycom's high-definition telepresence solutions have generated impressive growth in an increasingly interactive world.
However, reduction in sales of the company's high-margin Network Systems products and intensifying competition in this segment remains a concern for Polycom. Beyond macroeconomic demand factors, the company's balance sheet is capable of supporting initiatives for new ventures. We believe robust market demand for online voice/video collaborative solutions and strong business relationships with several large companies should be considered enablers for the company's long-term prospects.
