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Koninklijke Philips Electronics N.V. (PHG - Free Report) returned to profitability in the second quarter 2012 against a loss in the year-ago quarter, sending earnings estimates higher over the past 30 days. Cost reduction plans and innovative product launches should add to the company’s growth strategy and work in its favor. With an 18.2% gain in the share price since last June, this Zacks #2 Rank (Buy) electronics manufacturer looks like a solid growth pick.

Driving Catalysts

On July 23, Philips reported second quarter 2012 net income of €167 million ($215 million), versus a net loss of €1.3 billion ($1.8 billion) (including impairment charges) in the year-ago quarter. Results, however, increased 318% year over year, excluding impairment charges.

Sales increased 5% on a comparable basis with all sectors performing well. The only exception was the Innovation, Group & Services sector, which registered a 13% decline in sales.

Philips is progressing well with its €800 million cost reduction plan targeting mainly overhead and indirect costs.

Moreover, new products were launched recently, including an innovative product for sleep apnea patients and a unique appliance dubbed AirFryer that, aptly, fries using air.

Estimates Move Higher

Over the last 30 days, the Zacks Consensus Estimate for 2012 increased 3.6% to $1.42 as two of three estimates moved higher. The Zacks Consensus Estimate for 2013 increased 25.8% to $1.95 as all three estimates received a boost. The estimates represent year-over-year growth of 54.0% for 2012 and 37.9% for 2013.


Philips is currently trading at a price-to-sales (P/S) ratio of 0.61, a discount of 58% from the peer group average of 1.45. On a forward P/E basis, shares trade at 14.46x, compared with peer the group average of 14.53x. The company has a ROE of 1.4% compared with the peer group average of 15.2%.

Though the stock is yet to reach pre-recession price levels, it did well in 2010 and plummeted again in 2011. Now, the stock is again back on the recovery path as can be observed in the chart below. Growth prospects appear bright with the rising Zacks Consensus Estimate.

Headquartered in Amsterdam, The Netherlands, Koninklijke Philips Electronics N.V. develops, manufactures and sells electronics goods designed especially to cater to the various needs of its customers in the Healthcare, Consumer Lifestyle and Lighting sectors. With sales of approximately €22.6 billion in 2011, the company is considered the biggest electronics manufacturer in Europe and among the largest in the world. The company was founded in 1891 and has a market cap of about $19.32 billion.

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