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Philips (PHG) Recalls CPAP, Ventilators Used for Sleep Apnea

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Koninklijke Philips (PHG - Free Report) is recalling some Bi-Level Positive Airway Pressure (Bi-Level PAP), Continuous Positive Airway Pressure (CPAP), and mechanical ventilator devices in the United States, as announced earlier on Apr 26.

Philips identified health risks with the polyester-based polyurethane (PE-PUR) sound abatement foam component in these devices that might degrade and become toxic. The recall includes first-generation DreamStation product family.

Sleep & Respiratory Care segment of the Connected Care business vertical has witnessed exceptional growth, driven by the rollout of the DreamStation portfolio and heightening customer satisfaction that has helped the company win market share.

The recall is expected to hurt Sleep & Respiratory Care’s top line in 2021. However, strong performance by other businesses, including Diagnosis & Treatment and Personal Health, is expected to help Philips’ top-line growth in 2021.

Markedly, on Apr 26, Philips offered its updated guidance for 2021. The company expects to deliver low-to-mid, single-digit comparable sales growth, better than the previous guidance of low single-digit growth. Adjusted EBITDA margin is expected to expand 60-80 basis point (bps).


However, costs related to recalling, as well as the repair and replacement program, increased by €250 million, making it €500 million to date.

Notably, Philips shares are up 4.3% year to date, beating the Zacks Medical Products return of 2.1%.

Philips is expected to benefit from increased demand in the Diagnosis & Treatment and Personal Health businesses. The company continues to witness solid demand for patient monitors, hospital ventilators, computed tomography and portable ultrasound systems due to the coronavirus outbreak.

Moreover, increased interest in telehealth solutions, like tele-ICU, tele-radiology and tele-pathology, which help virtual working and collaboration of healthcare professionals, bodes well for Philips. Further, an expanding partner base is expected to aid recurring revenue growth.

For the 2021-2025 period, Philips now expects comparable sales growth between 5% and 6%, annually. Moreover, adjusted EBITDA margin is likely to increase 60-80 bps annually. Additionally, free cash flow is expected to be €2 billion by the end of this time frame.

However, Philips’ near-term profitability is likely to be hurt by coronavirus and sluggish growth prospects of the healthcare market on a global scale.

Zacks Rank & Stocks to Consider

Philips currently has a Zacks Rank #5 (Strong Sell).

National Vision Holdings (EYE - Free Report) , PetIQ (PETQ - Free Report) and Envista Holdings (NVST - Free Report) are better-ranked stocks in the same sector. While National Vision Holdings and PetIQ sport Zacks Rank #1 (Strong Buy), Envista has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for National Vision Holdings, PetIQ and Envista Holdings is pegged at 23%, 25% and 26.4%, respectively.


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