PHILIPS : Feedback (and thoughts) from sell side meeting

Research evidence excerpt

PHILIPS : Feedback (and thoughts) from sell side meeting

Refinitiv

Investment case, valuation and risks

Philips (Outperform, Target Price EUR31.5)

Investment case

Philips has reinvented itself as a major MedTech player. A healthier Imaging market, a

growth-enhancing move into devices and a likely rebound in Personal Health sales

support the growth prospects. Philips is also uniquely positioned to benefit from the

digitalisation of healthcare. Admittedly, the transformation was not without incident and

investor confidence initially suffered. Sentiment has troughed and the valuation gap

with Imaging players is high. The legal liability risk is now behind, and financial flexibility

has been protected.

Valuation methodology

Our target price is based on the average of our DCF and SOTP. Our SOTP approach,

based on EV/EBIT, separates Diagnosis & Treatment (in line with peers), Personal

Health (10% premium to peers) and Connected Care (in line with peers).

Risks

To the upside:

Upside risks mainly come from Philips' ability to beat consensus expectations on margin

development and from more pronounced market share gains in Imaging, driving

investors away from the regulatory headwinds still faced by the CC business. Further

growth-enhancing deals in IGT, strengthening of the supply chain and positive outcome

from the ongoing DoJ investigation in S&RC could help sentiment. We also see upside

risk from the end of the Consent Decree (timing uncertain), return to cash dividend and

share buy-back.

To the downside:

A marked slowdown in order intake at D&T, renewed manufacturing jitters, slower margin

gains, increased scrutiny from the FDA and ongoing DoJ investigation into the

Respironics issues could continue to weigh on the shares. Political uncertainty e.g.