Shares of Koninklijke Philips N.V (PHG) reached a 52-week high of $37.07 on Monday, Jan 6, 2014. However, the stock closed at $36.54, representing a one-year return of about 37.3% and a decent year-to-date return of about 0.68%. Average volume of shares traded over the last three months stands at approximately 485,090.
Strong momentum in the Consumer Lifestyle segment and LED-based sales as well as the company’s transformation and performance improvement program Accelerate! are some of the growth catalysts. In addition, Phillips reported improved results for the third quarter of 2013.
Phillips’ Strengths
Phillips is set to benefit from the rapid adoption of LED-based lighting solutions across the globe. In the last reported quarter (3Q2013), LED sales grew 33% year over year and represented 30% of the total lighting sales. Phillips currently is the market leader of LED-based lighting solutions. During the third quarter, the company received key contracts from Dubai Municipality and Government of the City of Buenos Aires.
LED-based lightning not only reduces electricity consumption and carbon footprint but also helps in reducing crime. The white light of LED enables better facial recognition and adequate color perception, not only by the human eye but also through security cameras, thereby aiding in crime prevention.
Further, the company is also doing well in its Consumer Lifestyle segment with continuous introduction of consumer friendly products. Recently, at a trade show in Berlin, Phillips revealed a range of digitally connected consumer innovations ranging from male grooming kits, kitchen appliances, coffee makers, mother and childcare accessories to air purifiers.
Apart from this, Phillips implemented Accelerate! to realize its value potential and speed up growth. In addition, the company has taken initiatives to implement the Phillips Business System, which includes a €500 million cost reduction program that is expected to be accretive to margins from 2013.
Improved 3Q13 Earnings
Phillips reported net income of €281 million ($372.2 million) in the third quarter of 2013, up 167.6% year over year. The year-over-year growth was primarily due to overall improvement in operating results and lower restructuring and acquisition related costs. In addition, Accelerate! has also been a driving factor for the robust increase in income. The company reported third quarter earnings of €0.31 (41 cents), a strong 181.8% year over year increase.
Third quarter sales on a comparable basis grew 3% year over year to €5.6 billion ($7.4 billion). However, group nominal sales declined 3% year over year due to 6% impact from unfavorable currency translations.
Estimate Revisions
Over the last 90 days, none of the estimates for 2014 and 2015 have been revised upward. However, the Zacks Consensus Estimate for 2013 grew 4.0% to $1.80 per share and declined $1.4 to $2.18 per share for 2013 and 2014 respectively.
Conclusion
The company has reported profit for two consecutive quarters, sending earnings estimates higher over the past 90 days for 2013. Cost reduction plans and innovative product launches are helping the company’s growth strategy and are working in its favor. Furthermore, strong earnings and revenues thanks to well-performing sectors are also driving the stock’s performance.
Other Stocks to Consider
Koninklijke Philipscurrently has a Zacks Rank #3 (Hold). Investors interested in the electric products and miscellaneous sector can consider GrafTech International Ltd. (GTI), Acron Energy Inc. (ACFN) and Universal Electronics Inc. (UEIC). While GrafTech carries a Zacks Rank #1 (Strong Buy), Acron and Universal Electronics carry a Zacks Rank #2 (Buy).
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