PHG - Philips upgraded at Societe Generale; says stock more than discounts bad news

The American Depositary Shares of Koninklijke Philips N.V. ( NYSE: PHG ) extended recent gains on Monday after Societe Generale upgraded the Dutch healthcare company to Buy from Hold, citing an undervalued stock that overly reflects the ongoing bad press.

However, the analysts led by Delphine Le Louet lowered the 12-month price target to €21 from €22.4 to account for PHG’s decline in the ESG rankings run by the firm.

The upgrade comes as PHG is reeling from a product recall announced last year over millions of defective respiratory machines used to treat sleep apnea. The issue has wiped off more than $27B market cap from the company amid mounting concerns over potential litigation risks.

However, the analysts see the company shares as more than implying the bad news they have considered in the model.

Societe Generale expects the product recall issue to ease from 3Q and PHG to regain market share in this segment even as the legal cases are likely to dominate over the next two years adding volatility to the stock.

Seeking Alpha contributor Prasanna Rajagopal offered similar views on PHG last month, noting that the stock “is trading at a compelling valuation after the sell-off.”

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