A little more than one month ago, we updated our initial thesis on Philips (NYSE:PHG). Our initial thesis covered the fact that the market has mainly been ignoring Philips’ transformation towards becoming a pureplay medical equipment player. In our follow-up work, we highlighted concrete catalysts that would force the market to see Philips from a different perspective. The main catalyst is the M&A activity that Philips will complete in 2021. The company expects to close the divesture of its domestic appliances division in the third quarter of this year and it expects to round up the acquisition of BioTelemetry (NASDAQ:BEAT) in the current quarter. The two deals which are both margin accretive will reduce the revenue contribution from the personal health division from nearly 1/3rd of revenues to less than a fifth of revenues. This shift will be in favor of the medical equipment and software segments of Philips. Since publishing this update, two events have taken place. Philips has published an excellent fourth quarter earnings report and the company announced yet another acquisition. We feel that these events may be the final push that the market needed to start seeing the transition that is taking place at Philips. Our conviction is ever increasing and we thus come out with another buy recommendation.
Source: 1000merken.com
Wrapping up the year in a strong position
Philips reported excellent fourth quarter results on the 25th of January. Not only did the company report both top- and bottom line numbers that exceeded consensus expectations but Philips also managed to return to year-on-year growth for all important metrics (Revenue, Adjusted EPS, Free Cash Flow, EBITA margin).
Important to note is that there was also a solid increase of 9% in the order book, which bodes well for the upcoming quarters.
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