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Philips Electronics N.V. (PHG)

PHG

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We are downgrading our Neutral recommendation on Philips Electronics N.V. (PHG) to Underperform with a $16 target price. The company had a very modest fourth quarter with revenues marginally up by 3.3%, primarily driven by moderate growth across its segments. The company posted a net loss of $160 million due to a higher loss from the company s discontinued television business.

The net cash flow also declined compared to the prior year, attributable to higher working capital outflow related to higher vendor payments. The stock is currently trading at a premium to the peer group, based on 2011 forward earnings estimates.

Our long-term Underperform recommendation on the stock indicates that it will perform below the broader U.S. equity market over the next six to twelve months. Our target price is $16.00 or 18.8X 2012 EPS -- well within the historical range -- supports our downgrade.

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