Analyst Note| Javier Correonero |
There were no surprises in narrow-moat Philips' third-quarter results, with sales declining 7.60% organically (EUR 4.20 billion) mainly due to recall issues on its sleep-device installed base. During the second quarter, the company identified potential risks for consumers related to some foams used in their sleep apnea installed base. Of the 2.20 million devices affected, Philips has already produced 750,000 repair kits and replacement devices, of which 250,000 have already reached customers with an expectation to address all affected devices within 12 months from U.S. Food and Drug Administration approval, or September 2022. We forecast a double-digit decline in connected care sales for 2021, only reaching 2020 levels by 2023, and implying a market share loss against Resmed, the main beneficiary of Philips’ issues. Management adjusted its 2021 guidance, but maintained midterm guidance of mid-single-digit growth and 60 to 80 basis points of yearly margin improvement. We have slightly adjusted our midterm margin forecasts, but maintain our EUR 42 fair value estimate.