Sell Philips Electronics

Headquartered in Amsterdam, The Netherlands, Koninklijke Philips Electronics N.V. (PHG - Analyst Report) is one of the world's largest electronics companies and the biggest in Europe, with sales of EUR27 billion in 2007 and EUR26.3 billion in the full-year 2008.

Given the reduced visibility in the global economy, which progressively deteriorated during the quarter, the company has decided to restructure businesses in all 3 sectors which lead to additional charges in the Q4FY08. This has caused us to reduce overall revenue growth rate to negative 3.2% in Euro terms, for 2009 compared to negative 2.2% recorded for 2008. The revenue growth rate in terms of dollars is projected at negative 12% for FY09 compared to 3.78% for FY08.

The company is working to improve its cost structure and its EBITA margins have declined in 4Q08 due to restructuring charges booked. Based on these results, we have downgraded the shares of PHG to a Sell with a price target of $15.00 or 7.5x 7.8x our 2009 EPADS estimate of $1.97.

Udayan Mukherjee contributed to this report.