Philips Earnings: Reaches $1.1 Billion Settlement Agreement; Maintaining EUR 21 Fair Value Estimate

Narrow-moat Philips' shares jumped 30% in early April 29 trading after the firm reached an agreement to resolve economic loss, personal injury, and medical monitoring litigation for sleep therapy devices in the US for $1.1 billion or EUR 982 million. The stock market liked the news as investors were likely anticipating a higher settlement amount. This agreement ends a large amount of Philips’ litigation uncertainty as the majority of cases were related to sleep apnea patients. Philips also admitted no fault, liability, or that any injuries were caused by the devices. Management estimates most of the claimants have already submitted a claim given the long period since the recall was initiated and the case has been advertised for three years. Philips still needs to be investigated by the Department of Justice, which management did not comment on, and reach an agreement over ventilation devices although the number of affected patients from ventilation devices is significantly lower than for sleep devices. We maintain our EUR 21 fair value estimate after adjusting our forecasts and given the settlement amount was aligned with our estimates.