Logitech's Stock Is Downgraded By UBS, Citing Rising Competition

Considering Logitech's increased competition, UBS says it's time to back away from Logitech as the company deals with greater challenges.

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The Swiss-American computer peripherals company will have to navigate several challenging quarters amid rising inflation and a weaker consumer market, according to analyst Joern Iffert, who downgraded shares to neutral from buy.

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This downgrade was accompanied by a lower price target of CHF57 from CHF66, along with the analyst's downgrade. In the next twelve months, the new target implies an upside of 9% over the previous target. Additionally, Iffert reduced his per-share earnings estimates for 2024 and 2025 by 10% and 11%, respectively, based on his latest estimates.

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“In our industry analysis and expert calls, we came to the conclusion that Logitech's business environment is becoming incrementally tougher over time,” Iffert wrote in a note sent to clients on Tuesday.

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“Savings in costs will be supportive of earnings growth at Logitech, but the company operates in a low barrier to entry hardware market, so it's essential that we have some level of visibility on top-line growth, which we don't have at the moment,” Iffert added.

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The analyst outlined several reasons to explain the downgrade, including a tougher macro environment for hardware and software companies. According to Iffert, Logitech's gaming market could be impacted by layoffs at its competitors Dell and Zoom, as well as the recent reopening of the Chinese market, which could result in a fall in demand for gaming products. Logitech is expected to turn positive in its sales growth in the calendar year of 2024, according to the analyst.

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There are low entry barriers in Logitech's hardware end markets compared to other markets in the world, and technology migration can have a negative impact on earnings in FY 24E. However, there are also low barriers to entry in Logitech's hardware market.

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Despite this, the analyst predicts that in the medium term, competition from larger consumer and technology companies, such as Apple and Meta, will increase.

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Logitech's U.S.-listed shares have fallen 12% this year, worse than the S&P 500's 4% decline. Nearly 1% of the computer peripherals stock fell in premarket trading.

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