UBS has issued a report on Logitech (NASDAQ:LOGI) International SA (SWX: LOGN), maintaining a 12-month "Sell" rating and setting a price target of CHF65.00.
The analysis highlighted the importance of pricing as an indicator of consumer demand and margins for Logitech's products.
The firm tracked the pricing trends of key Logitech items sold on Amazon (NASDAQ:AMZN) in the United States, which accounts for approximately 25-30% of Logitech's group sales. These products are mainly from divisions that contribute over 95% of earnings: gaming, PC peripherals, and Video Conferencing.
Despite recent average selling price (ASP) increases of 10-15% aimed at offsetting inflation, lower input costs have not yet been reflected in consumer prices within the hardware industry.
However, there are emerging signals that this might change. Notably, Logitech has experienced the highest revenue run rate among its peers in gaming peripherals since the COVID period, presenting challenging comparisons moving forward.
In terms of specific product categories, UBS observed a decline in ASPs for Logitech's gaming mice (-7%), keyboards (-6%), and headsets (-4%) month-over-month. Conversely, non-gaming categories like PC mice saw a smaller decrease (-2% m/m), while PC keyboard and video conferencing ASPs increased by +3% and +1%, respectively.
This resilience in PC peripheral prices is attributed partly to Microsoft (NASDAQ:MSFT) exiting the market about 9-12 months ago. Nevertheless, Incase's plan to relaunch the Microsoft PC peripheral business in the second half of 2024 could reintroduce competitive pricing pressures.
Logitech's guidance acknowledges certain risks, but actual sell-through, reflecting end-consumer demand, remains crucial. In Q1 FY25, sell-through growth was modest at +3% year-over-year, compared to a +12% sell-in figure.
With a soft consumer environment in North America and potential market share losses in China, muted sell-through is anticipated to continue. This may lead Logitech to increase promotions, potentially impacting volumes and margins.
UBS also noted that investor expectations for Logitech appear optimistic, with projections sitting at 17-18x EV/EBITDA for FY 2025E. Such high valuations presuppose significant upside risk to consensus estimates, which UBS suggests may not fully materialize in the next 6-12 months.
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