PHG - Philips cut to Underperform at Jefferies after profit warning

A bearish outlook painted by Koninklijke Philips N.V. ( NYSE: PHG ) last week has led to a downgrade on Wall Street as Jefferies lowered its recommendation on the Dutch healthcare company to Underperform from Hold on Tuesday.

Issuing an update on its Q3 2022 performance, PHG said on Wednesday that the company expects its comparable sales to decline ~5% YoY during the quarter with a €1.3B non-cash charge for goodwill impairment impacting the bottom line.

Citing the profit warning and ongoing macro concerns, Jefferies analysts led by James Vane-Tempest lowered the company's 2022 – 25 earnings per share estimates by as much as ~15 – 30%.

"We view PHIA as sensitive to supply chain headwinds and expect these challenges to continue in '23," the analysts added, slashing the price target on the stock to €11.40 from €22.00 per share.

Citing a product recall, the company announced due to millions of defective respiratory machines last year, the team projects a 50% permanent market share loss and says PHG's Sleep Care sales are unlikely to recover until at least Q4 2023.

The analysts also think that a Consent Decree with the U.S. Department of Justice over the product recall will take longer than the management anticipates, impacting PHG's 2023 performance amid cautious consumer behavior and supply constraints.

"We see the potential for further downgrades in '23 and risks to mid-term guidance," the team concluded.

Wall Street has remained bullish on Philips ( PHG ), with an average rating of Buy from analysts in line with Seeking Alpha Author ratings. However, Seeking Alpha's quant system, which consistently beats the market, indicated a bearish outlook on PHG since early 2021.

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