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Koninklijke Philips NV ADR PHG

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Philips' Sleep Devices Provision Stands in the Way of a Solid Consensus Beat; Increasing FVE

Javier Correonero Equity Analyst

Analyst Note

| Javier Correonero |

Narrow-moat Philips reported a solid consensus beat for first-quarter 2021, however shares are down 3% at the time of the writing as the company has disclosed some risks in its sleep apnea devices installed base. Some Philips customers have been using ozone as a cleaning solution for sleep devices (which is not allowed by regulators) and this has degraded the foams used for noise abatement. Although the occurrence rate of these issues has been low so far, there are no reports of harm to patients and the devices can continue to be used. Philips will check the approximately 2 million installed devices that have been affected and it has taken a €250 million provision as a precautionary measure. Management also highlighted some concerns regarding the global semiconductor supply shortage, which has already halted car production worldwide and could also affect manufacturing of medical devices. Notwithstanding, we don’t anticipate any potential shortage to be a permanent problem. We're increasing our fair value estimate to EUR 42 for local shares and $50 for the ADRs due to the time value of money after rolling our model.

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Company Profile

Business Description

Philips is a diversified global healthcare company operating in three segments: diagnosis and treatment, connected care, and personal health. About 44% of the company's revenue comes from the diagnosis and treatment segment, which features imaging systems, ultrasound equipment, image-guided therapy solutions and healthcare informatics. The connected care segment (24% of revenue) encompasses monitoring and analytics systems for hospitals and sleep and respiratory care devices, whereas the personal health business (remainder of revenue) includes electric toothbrushes and men's grooming and personal-care products. In 2020, Philips generated EUR 19.5 billion of sales and had 80,000 employees in over 100 countries.

Philips Center, Amstelplein 2
Amsterdam, 1096 BC, Netherlands
T +31 205977777
Sector Healthcare
Industry Diagnostics & Research
Most Recent Earnings Dec 31, 2020
Fiscal Year End Dec 31, 2021
Stock Type
Employees 77,343