On Jan 9, we maintained our Neutral recommendation on
Koninklijke Philips Electronics N.V.
). We are concerned about the ongoing global economic uncertainty
and the strong competition faced by the company. However, Philips
has reported profits in three consecutive quarters, and the cost
reduction plans as well as product launches are further
benefiting the company's growth strategy.
Moreover, the LED lighting segment is one of the growth
stimulants of the company, contributing about 33% of the total
Why the Reiteration?
On Oct 23, Philips reported net income of €281 million ($372.2
million) in the third quarter of 2013, up 167.6% from the
prior-year quarter. The year-over-year growth was primarily due
to overall improvement in operating results and lower
restructuring and acquisition-related charges. In addition,
project Accelerate has also been a driving force impelling the
robust increase in
Philips reported third-quarter earnings of €0.31 (41 cents),
reflecting a substantial 181.8% year-over-year
Third quarter sales on a comparable basis grew 3% year over
year to €5.6 billion ($7.4 billion). However, group nominal sales
declined 3% year over year due to 6% impact from unfavourable
Following the release of the third-quarter results, the Zacks
Consensus Estimate for earnings for fiscal 2013 increased 4.7% to
$1.80 per share, while the same for fiscal 2014 inched up 0.5% to
$2.18 a share.
Philips is all set to benefit from the rapid adoptionof
LED-based lighting solutions across the globe. In the last
reported quarter, LED sales grew 30% year over year and
represented 33% of the total lighting sales. Philips is currently
the market leader in LED-based lighting solutions.
In addition, Phillips implemented a comprehensive performance
improvement and change program called Accelerate to realize the
value potential of the company and speed up growth. In addition,
the company has launched key initiatives to implement the Philips
Business System, which includes a €500 million cost reduction
program that is expected to be accretive to margins from
However, global economic uncertainty is expected to impact all
business segments of the company. Further, the healthcare
construction is expected to decline 2% in 2013. The patient
procedure volume growth expectation also remained flat in the low
Currently, Philips carries a Zacks Rank #3 (Hold). Investors
interested in the electronics sector can consider better-ranked
Acorn Energy Inc.
). All three stocks carry a Zacks Rank #2 (Buy).
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DAKTRONICS INC (DAKT): Free Stock Analysis
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KONINKLIJKE PHL (PHG): Free Stock Analysis
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