UBS raises Philips stock rating, sets EUR29 target

On Thursday, UBS analyst Graham Doyle upgraded shares of Koninklijke Philips NV (ETR:PHI1) (PHIA:NA) (NYSE: PHG) from Neutral to Buy, with an increased price target of EUR29.00, up from EUR26.50. The upgrade comes as the stock has experienced a significant 12.4% decline over the past week, according to InvestingPro data. Doyle’s upgrade follows significant strides by the company in addressing past challenges, including the completion of a product recall, settlement of major personal injury litigation, margin improvements, and balance sheet deleveraging.

Doyle highlighted Philips’ potential to align with the sector’s expected revenue growth of 5% compound annual growth rate (CAGR) from 2025 to 2029, with an even faster estimated 10% CAGR in earnings per share (EPS). With analysts expecting the company to return to profitability this year and two analysts recently revising their earnings estimates upward, the growth outlook appears promising. He pointed out that despite these positive developments, Philips’ stock is trading at 15 times its estimated 2025 earnings per share, which he considers undervalued. The stock experienced an 11% drop following the fiscal year 2024 results, a move Doyle regards as unjustified.

The analyst emphasized that Philips is currently one of the most attractively priced stocks in the European MedTech sector. It is trading at a roughly 10% discount relative to its sector, imaging peers, and the broader market compared to the last 7-10 years, except during the recall period between 2021 and 2023. This view is supported by InvestingPro’s analysis, which indicates the stock is currently undervalued, with a "GOOD" overall Financial Health score. Doyle believes that the market is overlooking the potential upside to the consensus estimates for 2025. For deeper insights into Philips’ valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro, along with 8 additional ProTips and extensive financial metrics.

In his statement, Doyle said, "We believe management has made significant progress in recent years; completing the recall, settling major personal injury litigation, repairing margins and deleveraging the balance sheet. This means we expect it to deliver in line with sector revenue growth of 5% CAGR 2025-29E but a slightly faster EPS CAGR at 10%."

UBS’s new price target implies a greater than 20% upside for Philips shares, which is a strong signal of confidence in the company’s future performance from the firm. Doyle’s analysis suggests that Philips’ current valuation does not reflect its growth prospects and recent improvements, presenting an opportunity for investors.

In other recent news, Philips has maintained its Market Perform rating with a price target of EUR32.00 ($33.00 ADR) according to Bernstein SocGen Group. This decision follows a significant 17% drop in Philips’ stock value after the third-quarter earnings report, which highlighted a sharp decrease in Personal Health sales in China. Despite the challenges in China, Bernstein analysts expect mid to high single-digit growth in Philips’ other divisions and project a compound annual growth rate of 14% in earnings per share from 2024 to 2029. Additionally, Bernstein adjusted Philips’ price target to $33.00 from $36.50 while maintaining an Outperform rating, citing unforeseen challenges in the third quarter but recognizing the company’s strong recovery potential in 2024. Analyst Lisa Bedell Clive noted Philips’ alignment with megatrends such as data analytics and AI in healthcare, contributing to growth in most of its markets. The company is acknowledged for its strong global positions in various business lines, despite being perceived as a distant third in the Diagnostic Imaging sector. The impact of weak consumer spending in China is considered to be already reflected in Philips’ current valuation.

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