Company Reports

Philips posted strong headline results and raised its EBITA and cash flow outlook on a one-off US tariff refund. However, beneath the headline, diagnosis and treatment profitability weakened, order intake turned negative, and growth shifted away from core markets. Shares fell 9% on the news.

Philips is one of the leaders in imaging and image-guided therapies. But the company's track record is checkered, with multiple self-induced missteps tarnishing its reputation and investor confidence. We believe the resolution of sleep care problems, focus on its high-performing areas, and new management team should be able to change the narrative, but uncertainty remains.

Philips' first-quarter results showed resilience on the bottom line and stable demand. The company also reiterated its full-year outlook despite rising input costs. Shares were roughly flat on the news.

Philips delivered a strong performance across all three segments, with revenue and profitability moving in the positive direction. Shares are up 10%-plus on the news.

Philips delivered strong order book growth and profitability improvement in the third quarter, but noted continuing subdued performance in China. The company reiterated its full-year guidance. Shares are roughly flat.

Philips delivered good order book growth and profitability improvement in the second quarter. The company also raised its full-year margin guidance, sending shares up close to 10%.

Philips is one of the leaders in imaging and image-guided therapies. But the company's track record is checkered, with multiple self-induced missteps tarnishing its reputation and investor confidence. We believe the resolution of sleep care problems, focus on its high-performing areas, and new management team should be able to change the narrative, but uncertainty remains.

Philips saw a 1% decline in sales in the first quarter of 2025, slightly ahead the company-compiled consensus estimates. The company maintained its full-year sales growth guidance but lowered adjusted EBITA due to phasing in US-China tariffs. The share price dipped 2% at market open on May 6.

Philips provided a cautious sales growth outlook for 2025, despite a slight improvement in Chinese sales during fourth-quarter 2024, and modest growth across mature geographies throughout the year. The market reaction was negative, with shares dropping around 13% at the start of trading on Feb.19.

Philips dialed down its full-year outlook on deteriorating China demand. Shares are down materially as investors see uncertainty in China extending beyond 2024.

Philips is one of the leaders in imaging and image-guided therapies. But the company's track record is checkered, with multiple self-induced missteps tarnishing its reputation and investor confidence. We believe the resolution of sleep care problems, focus on its high-performing areas, and new management team should be able to change the narrative, but uncertainty remains.

As Philips navigates restoring investor trust, the company's capital markets day was a clear attempt to highlight the strengths and opportunities of the core franchises while trying to assuage concerns around lackluster organizational quality control and operational execution. For us, there were three clear takeaways. First, the company's product portfolio and pipeline in imaging, particularly image-guided therapy, or IGT, is healthy. Secondly, the informatics business is attractive, but there are questions around pricing and the company's ability to leverage investments that should accelerate profitability if successful. Lastly, execution is key, and the largely overhauled management team has significant challenges ahead of it. We're maintaining our fair value estimate and view shares as undervalued at current levels as the market continues to value the company at a discount to its peers.

Following our initiations on GE Healthcare and Siemens Healthineers and subsequent to the litigation resolution in the sleep care business, we have taken a fresh look at Koninklijke Philips. We're upgrading the company's moat to wide given Philips' position as one of the leaders in imaging and image-guided therapies. The company's track record is checkered, with multiple self-induced missteps tarnishing its reputation and investor confidence, but we believe the resolution of sleep care problems, focus on its high-performing areas, and new management team should be able change the narrative. We're raising our fair value estimate to EUR 35/USD 39 per share. We believe shares are undervalued at current levels, even with the higher level of uncertainty relative to its peers.

Philips is one of the leaders in imaging and image-guided therapies. But the company's track record is checkered, with multiple self-induced missteps tarnishing its reputation and investor confidence. We believe the resolution of sleep care problems, focus on its high-performing areas, and new management team should be able change the narrative, but uncertainty remains.

Narrow-moat Philips delivered good operating results, with comparable sales growth up by 2% and the order intake up by 9%. Most importantly, this is the first quarter not dominated by the uncertainty around sleepcare. Philips reiterated its 2024 revenue growth guidance of 3%-5%. We're updating our model to incorporate the latest results.

Philips is a one-stop shop for imaging-related devices with an established footprint in many hospitals, which positions it to benefit from long-term healthcare trends like the transition to noninvasive or minimally invasive procedures and increased hospital demand for efficiencies. Through several divestitures and acquisitions, Philips has transformed itself from an industrial medical conglomerate into a healthcare company and primary supplier across hospitals, which facilitates the introduction of new products and the displacement of smaller suppliers with more depth in a single product line but lack of breadth. In many of its underlying markets, the company operates in an oligopoly where significant market share is controlled by a few players. Several of Philips' products require proprietary software or service; this provides stability to cash flows and helps to lock in customers. In addition, the company has carried out several divestments and acquisitions, which we believe has reinforced its positioning.

Philips is a one-stop shop for imaging-related devices with an established footprint in many hospitals, which positions it to benefit from long-term healthcare trends like the transition to noninvasive or minimally invasive procedures and increased hospital demand for efficiencies. Through several divestitures and acquisitions, Philips has transformed itself from an industrial medical conglomerate into a healthcare company and primary supplier across hospitals, which facilitates the introduction of new products and the displacement of smaller suppliers with more depth in a single product line but lack of breadth. In many of its underlying markets, the company operates in an oligopoly where significant market share is controlled by a few players. Several of Philips' products require proprietary software or service; this provides stability to cash flows and helps to lock in customers. In addition, the company has carried out several divestments and acquisitions, which we believe has reinforced its positioning.

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.

Narrow-moat Philips' shares were down 6% at the time of the writing as the firm has provided new details on the consent decree it agreed on with the U.S. Food and Drug Administration. The consent decree will prevent Philips from selling new respiratory devices in the United States for several years, although the exact timing is still uncertain. The firm can still sell consumables and replacement parts, and outside the U.S. it can still sell new devices if certain conditions are met. However, this is a big blow for Philips, given that the U.S. accounts for more than 50% of its sleep business under normal conditions. The firm has recorded an additional EUR 363 million provision from remediation activities and still faces uncertainty from litigation brought by patients. Although Philips' reputation in sleep and respiratory devices had already been severely hurt, we now believe it will be very difficult for the firm to ever recover its competitive position in this market. The new restrictions will curtail the growth profile of this business for several years. Sleep and respiratory revenue has declined from a record EUR 2.7 billion in 2020 to around EUR 1 billion today. We are lowering our sales and EBIT margin forecasts and reducing our fair value estimate to EUR 21 per share from EUR 25. Our Morningstar Uncertainty Rating is High.

Philips is a one-stop shop for imaging-related devices with an established footprint in many hospitals, which positions it to benefit from long-term healthcare trends like the transition to noninvasive or minimally invasive procedures and increased hospital demand for efficiencies. Through several divestitures and acquisitions, Philips has transformed itself from an industrial medical conglomerate into a healthcare company and primary supplier across hospitals, which facilitates the introduction of new products and the displacement of smaller suppliers with more depth in a single product line but lack of breadth. In many of its underlying markets, the company operates in an oligopoly where significant market share is controlled by a few players. Several of Philips' products require proprietary software or service; this provides stability to cash flows and helps to lock in customers. In addition, the company has carried out several divestments and acquisitions, which we believe has reinforced its positioning.