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.