Shares of Logitech International S.A. (NASDAQ: LOGI) fell sharply despite a solid earnings report and improved guidance. The move took share prices to a two-month low, setting up an attractive buying opportunity in this consumer tech play. 

The opportunity is reversal. The market for Logitech corrected sharply following the COVID-19 bubble, and market normalization is now at hand. The Q3 results and guidance were better than expected and highlighted an inflection point for the business. The Q4 results may include another quarter of year-over-year (YoY) top-line decline, but the losses are narrowing, sequential is present.

What does this mean for the stock price? The price of LOGI hit bottom late in 2022 and has been rallying higher ever since. Now, the market is aligning with a head and shoulders pattern that could lead to more new highs this year. The move lower may not be over, but support is likely in the $80 to $85 region consistent with the pattern’s neckline, assuming that a rebound from that level will confirm critical support and lead to sideways action, if not new long-term highs. 

Consolidating the 100% gain posted over the last 15 months would be healthy for this market and a critical step toward making new highs. 

Logitech has a good quarter, guides higher 

Logitech had a solid quarter, with revenue and margin outperforming expectations. The company reported $1.26 billion in net revenue, down almost 1% YoY, but outpaced the consensus and compounded the strength with operational quality. Results were mixed across product categories, with product diversification driving overall revenue quality. Headsets and "other" were the weakest categories, while "keyboards" and "pointing devices" posted gains. 

Margin is the most significant aspect of this report. Despite top-line weakness, the company leaned hard into operational efficiency and inventory management to widen margin and grow income. GAAP operating income improved 26%, adjusted 22%, with cash flow up 58% and adjusted EPS up 34%. 

Logitech built its cash balance compared to last year while repurchasing shares. The Q3 repurchases annualize to over 5.5% in effective yield; repurchases are expected to continue in 2024 and may accelerate. 

Guidance is favorable to higher share prices. The company raised its guidance for revenue so that the new low-end of the range is above the prior high-end and the analysts' consensus. The guidance also forecasts wider margins and leaves the door open for growth to return this fiscal year, a quarter ahead of the consensus targets. 

The detail that sparked the 11% decline in share prices and today’s opportunity is caution about the Red Sea. Company executives cautioned that Red Sea disruptions could slightly impact Q4 results but not in a way that alters the outlook for growth, profits, and capital returns. 

Analysts hold onto Logitech and support its share price

The analyst activity in Logitech is not robust, but it supports the price action. The eight analysts with current ratings tracked by MarketBeat peg the stock at "hold" and have been lifting price targets. The consensus target moved higher every quarter of the 2023 calendar. 

A single revision popped up in the first 24 hours following the report, boosting its price target to $92. That is above the consensus of $83, suggesting the trend in analysis sentiment will continue to support this stock in 2024. 

Among the attractions of LOGI stock is its dividend. The yield aligns with the broad market S&P 500 average of 1.40% but comes with a higher degree of safety and a robust outlook for distribution growth. 

The payout is about 30% of earnings, backed by a solid balance sheet, and has been growing at a 10% CAGR. Distribution growth accelerated in 2023 and may remain robust, at around 20%, in 2024. Additionally, Logitech pays its distribution annually, making it a decent target for dividend scalpers. The company typically declares in July and goes ex-dividend in September. 

The technical outlook: Logitech falls to critical support

The charts and outlook favor a full reversal in LOGI, but there is risk. Support has begun to show itself, but has not yet confirmed the pattern’s neckline. In this scenario, there is a risk that support will fail at $80 and could retreat to the $70 level or lower.