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Friday, February 28, 2014 5:19:04 PM

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Logitech's Move into the Mobile Market Pays Off

BY John Mylant | 02/28/14 - 10:06 AM EST

NEW YORK (TheStreet) -- Logitech (LOGI_) has seen a stunning increase in the value of the stock through the second half of 2013 along with consecutive positive earnings surprises. Why is the stock doing so well?

It has had four straight quarters of earnings surprises where it beat analyst expectations. Something good has been happening just recently. Its last report in January saw the company beat analyst expectations in earnings, revenue and margins, a rarity for companies to do. Its shares are up 18% for the year to date as of its Thursday close of $16.16 compared with the Standard & Poor's 500, up 0.3% for the same period. Shares currently trade around $16.

Let's look at the company's performance over the last four quarters.

It appears Logitech is in a "turnaround" journey after years of mediocre performance. I believe the 2014 fiscal year supports the turnaround, at least the numbers do. It is planning its growth in the mobile market.

Why It has Suddenly Done Well

The company has been in a restructuring mode since 2012. There have been a number of steps the company has taken to move back into profitability and this includes:

?Reinvigorate the product portfolio
?Eliminated layers of business and sales management that wasn't needed
?Brand and portfolio management will also be reorganized
?Other functions are also been streamlined

Restructuring is expected to save the company $80 million in annual operating costs.

The company expected to benefit in three different ways as fiscal 2013 unfolded:

?A stronger product portfolio
?Simplifying organization processes
?Cost savings from restructuring

These things were to lead to better financial performance through 2013.

According to its investor presentations, we can see how in the last five quarters, the company's expectation of a better financial performance has really panned out. It has substantially beat analyst earnings estimates.

?December 2012: (Est. 0.34) (Act. 0.10) -70.59%
?March 2013: (Est. -0.12) (Act. -0.09 ) +25%
?June 2013: (Est. -0.11) (Act. 0.02) + 118.18%
?September 2013: (Est.0.05) (Act. 0.17) +240%
?December 2013: (Est. 0.14) (Act.0.32) +128.57%

This is one of the reasons the company has grown so much since July 2013.

Product Development Is the Key

The company's recent success may be attributed to the new product line for better enhanced customer satisfaction with the new Apple (AAPL_) iPad keyboard.

LOGI's new wired keyboard for the iPad will solve many problems that teachers face in schools. iPads have become more popular as they are being purchased by schools but they have also had to attempt to put together multiple wireless Bluetooth keyboards. Logitech's plug-in keyboard has full size keys, is durable as well as spill-resistant. It came out last year and recorded sizable sales.

It is in the mobile market that the company continues to focus its new products, slowly moving away from the desktop like other companies.

It intends to focus on penetrating the mobile market with accessories. Its "Keyboard Folio" and "Keyboard Folio Mini" are tablet and gaming accessories that are expected to create revenue long-term. In 4Q 2013, tablet accessories represented increased sales by 332% over the previous year with a total of $30.8 million.

With this in mind, it looks like the company is going to continue to perform well in the wireless industry. Its recent track record over the last year certainly backs up the quality of its products and shows that consumers are very interested. One cannot argue with numbers.

This company's productivity is doing well since it moved in the mobile market.

If you are interested in investing in Logitech, I would look to enter upon a dip. It has recently climbed at a 60% grade and I don't believe can keep up this level of growth. Usually, the steeper the grade; the steeper the correction.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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