Logitech Downgraded To Hold

Logitech International S.A. (LOGI) reported revenues for the second quarter of 2009, which were weaker than expected, and earnings were below our estimates due to higher than expected operating expenses.

The company delivered good quarter in terms of revenues despite weakness in the PC speaker and keyboard & desktop segments. There was strong demand for Harmony remotes and pointing devices combined with good traction in OEM. Gross margins remained at a high level for the company reflecting ongoing product cost reductions and supply chain efficiencies.

We now expect the company to earn $1.47 per share in fiscal 2009 from our previous $1.66 estimate which includes stock-based compensation, but excludes the one-time losses from CDOs, and we have fixed a price target of $15.50 over the next six months. This gives us a forward P/E slightly above 10.54x our fiscal 2009 earnings estimate, which we now believe is reasonable.

Additionally, we are downgrading LOGI to a Hold given the pervasive economic uncertainty both in North America and Europe, its major markets, which has the potential to weaken demand in the medium term.

Report by John Nelson Simon. Udayan Mukherjee contributed to the report.

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