LOGI: Navigating Sub News and Market Moves
Background:
LOGI
has been navigating a challenging few weeks. After a well-received earnings report in May that led to a significant increase in the company's value, June has proven less favorable. The announcement of CEO Bracken Darrell's departure on June 13, a downgrade by Citibank on June 14, and news that one of its controllers was being used to operate the lost Titan sub have all contributed to a difficult period. On a positive note, LOGI's board approved a three-year $1B buyback plan, which the market does not seem to have factored in yet.
While it might be tempting to attribute the measured gap down to market overreaction to the Titan sub news, the majority of this movement reflects the impact of the CEO's departure and Citibank's downgrade. The news about the sub tested the boundaries of this range, but it did not significantly affect it.
This situation presents a potential short-term play.
Timeline:
June 13 - Announcement of CEO Bracken Darrell's resignation
June 14 - Citibank downgrade
June 18-19 - News of missing sub trends
June 20 - Google search trend for Logitech reaches highest level in 90 days, memes about the use of the Logitech controller on the sub begin to appear
June 21 - Logitech Board approves $1B stock buyback
June 22 - Google search trend for Logitech appears to peak
https://trends.google.com/trends/explore?date=now%207-d&q=logitech&hl=en
Fundamental and Company Outlook:
Bracken Darrell, a highly regarded figure, will be challenging to replace. As part of their succession plan, board member Guy Gecht will serve as interim CEO while LOGI conducts a search for a permanent replacement. Gecht's resume boasts strong, relevant experience.
The company experienced a surge in sales and revenue during the COVID-19 work-from-home period, followed by a steep drop-off. Their near-term plans for revenue growth and profit margin improvement were well-received by analysts during the last earnings call. However, they did not clearly articulate their strategies for navigating supply chain and chip shortage issues, or maintaining competitiveness. Despite this, their cash flow, net debt, and share buybacks suggest that this is a financially sound company. However, their Return on Invested Capital (ROIC) and the trend in enterprise value are less compelling.
Near-Term Opportunity:
The news about a Logitech controller being used on the lost Titan sub did not significantly impact the share price, but it did test the lower limit of the measured gap down that occurred when Bracken Darrell's departure was announced. The market has yet to respond to the announced $1B stock buyback, which represents 11% of the company's current $8.8B market cap.
Given the long-term downtrend in price, I'm looking at between 45-55% of prior retraces and extensions as likely overhead resistance. My planned levels are:
-$55-56 entry
-$60-62 take profit
-$51-52 stop loss
-Risk/Reward 1.2
LOGI
has been navigating a challenging few weeks. After a well-received earnings report in May that led to a significant increase in the company's value, June has proven less favorable. The announcement of CEO Bracken Darrell's departure on June 13, a downgrade by Citibank on June 14, and news that one of its controllers was being used to operate the lost Titan sub have all contributed to a difficult period. On a positive note, LOGI's board approved a three-year $1B buyback plan, which the market does not seem to have factored in yet. While it might be tempting to attribute the measured gap down to market overreaction to the Titan sub news, the majority of this movement reflects the impact of the CEO's departure and Citibank's downgrade. The news about the sub tested the boundaries of this range, but it did not significantly affect it.
This situation presents a potential short-term play.
Timeline:
June 13 - Announcement of CEO Bracken Darrell's resignation
June 14 - Citibank downgrade
June 18-19 - News of missing sub trends
June 20 - Google search trend for Logitech reaches highest level in 90 days, memes about the use of the Logitech controller on the sub begin to appear
June 21 - Logitech Board approves $1B stock buyback
June 22 - Google search trend for Logitech appears to peak
https://trends.google.com/trends/explore?date=now%207-d&q=logitech&hl=en
Fundamental and Company Outlook:
Bracken Darrell, a highly regarded figure, will be challenging to replace. As part of their succession plan, board member Guy Gecht will serve as interim CEO while LOGI conducts a search for a permanent replacement. Gecht's resume boasts strong, relevant experience.
The company experienced a surge in sales and revenue during the COVID-19 work-from-home period, followed by a steep drop-off. Their near-term plans for revenue growth and profit margin improvement were well-received by analysts during the last earnings call. However, they did not clearly articulate their strategies for navigating supply chain and chip shortage issues, or maintaining competitiveness. Despite this, their cash flow, net debt, and share buybacks suggest that this is a financially sound company. However, their Return on Invested Capital (ROIC) and the trend in enterprise value are less compelling.
Near-Term Opportunity:
The news about a Logitech controller being used on the lost Titan sub did not significantly impact the share price, but it did test the lower limit of the measured gap down that occurred when Bracken Darrell's departure was announced. The market has yet to respond to the announced $1B stock buyback, which represents 11% of the company's current $8.8B market cap.
Given the long-term downtrend in price, I'm looking at between 45-55% of prior retraces and extensions as likely overhead resistance. My planned levels are:
-$55-56 entry
-$60-62 take profit
-$51-52 stop loss
-Risk/Reward 1.2