PHG Reports Mixed Quarter Results

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17 Oct 9:58pm
Posted by ZacksResearch
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The following excerpts explain why Zacks senior foreign technology analyst Robert J. Perri, CFA remains neutral on Koninklijke Philips Electronics N.V. (PHG), the electronic products manufacturer:

'Philips reported mixed results for the third quarter, as revenues were weak in the Medical Systems Division, but solid in DAP and Lighting. This led to the company meeting our revenue and earnings estimates on a Euro basis. The company has worked to improve its cost structure, as its EBITA margins improved despite the weak revenue performance.

'We were surprised by the weakness in the Medical Systems Division, which constitutes the second largest revenue earning segment, which has caused us to lower our outlook for the remainder of the year. While the company is calling for solid growth for the fourth quarter, the continued weakness of the US Dollar continues to be a concern, and we are not as optimistic.

'We have lowered our revenue and earnings estimates for the remainder of the year and for 2008 in Euro terms, but have lowered our expected currency rate for this period to $1.375 per 1, which makes it appear like we have raised our estimates in US Dollars slightly. The company needs to better manage its inventory, and the build up in Medical Systems leading into an election year, which may cause hospitals to delay order further.

'Based on these results and the continued weakness of the US Dollar, we have lowered our revenue and earnings estimates for 2007 and 2008 in Euro and continue to rate the shares of PHG a Hold with a price target of $45 per share over the next six months, or 25x our new 2007 EPS estimate of $1.80.'

Read the full analyst note on PHG.



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