This medical device maker is expected to grow earnings by more than 30% next year, and is trading at a severe discount. The shares have a current annual dividend yield of 3.07%, paid annually.
Koninklijke Philips N.V. (PHG)
From The Prudent Speculator
Perhaps known by many as an innovator and manufacturer of various consumer electronics, Dutch giant Philips has shed numerous businesses over the past decade to now focus on health technology and equipment. Nearly half of current revenue is generated from its Diagnosis & Treatment Segment, with the other half split between Personal Health and Connected Care (which houses sleep treatment products).
A voluntary recall last June (which has since widened in scope) of the firm’s CPAP and other sleep apnea therapies, given concerns involving the polyurethane foam used to dampen sound, has contributed to a near-halving of the stock price since the high last April, even as the revenue exposure from sleep therapies amounts to just 15% of the total. The potential liability from future litigation unknown, Philips and its competitors have warned that the use of ozone cleaning methods will void warranty and may contribute to decomposition of the foam.
The company also is dealing with the burden of supply chain tightness, but demand remains strong, while supply imbalances aren’t isolated to Philips and ought to eventually subside. The recent challenges “in” the stock price, we think it a fine time to pick up an inexpensive industry leader that operates in an oligopoly with large barriers to entry.
John Buckingham, The Prudent Speculator, theprudentspeculator.com, 877-817-4394, February 2, 2022