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Investing.com -- Logitech (SIX:LOGN) (NASDAQ:LOGI) shares received an upgrade from UBS analysts to Buy, pointing out several factors that could support the company’s performance despite current economic headwinds.
The bank also set a new price target (PT) for Logitech at CHF80, trimmed from CHF88, reflecting a more cautious outlook amid macroeconomic and tariff-related risks.
“Logitech will not be immune to initial tariff impacts and slowing macro/demand. However, the share price has come down already, reflecting investor uncertainties, and we look through some challenging quarters,” UBS analysts said in a note.
The analysts believe that Logitech will maintain healthy margins and cash flow levels and note the company’s strong pricing power in key products as well as its decision to optimize regional sourcing by reducing dependence on China, which is expected to fall to approximately 10% by the end of 2025, from the current 40%.
UBS also highlights Logitech’s robust balance sheet, which includes around $1.5 billion in net cash, and supports a $2 billion share buyback program, equivalent to approximately 15% of the company’s market capitalization.
Looking ahead, the bank forecasts attractive earnings per share (EPS) growth of over 16% and 8% for fiscal years 2027-2028, with margins rebounding to pre-tariff levels. In terms of valuation, Logitech shares are trading at 15x its projected earnings for fiscal year 2027 (FY27), excluding net cash, which is below the historical average of 17x to 19x.
A significant aspect of UBS’s positive outlook is the structural support provided by Generation Alpha’s gaming trends, which account for about 30% of Logitech’s sales.
UBS references a consumer survey and a broader analysis of Generation Alpha’s influence, noting the high engagement levels with video games and the potential for brands to connect with consumers through gaming channels.
The survey indicates that 94% of Generation Alpha members play video games, and nearly half reported purchasing products recommended by their favorite streamers.
Regarding the tariff situation, Logitech has acknowledged a gross margin impact of 500 basis points, excluding mitigating factors. However, UBS expects that Logitech’s pricing strategy and the reduction in sourcing from China will partially offset the negative effects of tariffs and declining volumes.
“After inflationary periods in 2022-23, Logitech was able to keep its average selling price (ASP) relatively resilient despite lower input costs, and this could result in upside risk for Logitech’s earnings once sourcing from China is reduced and/or tariffs are easing,” analysts added.