Is a Philips (PHG) Turnaround Just Beginning? -Barron's
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Barron's published an article this weekend detailing reasons why a turnaround at Philips Electronics (NYSE: PHG) may not be over.
The article, entitled "Philips: Turning on the Lights", begins by filling in readers on how the turnaround that began several years ago has paned out. According to Barron's, Philips' turnaround began with a restructuring plan introduced by the Company's President and CEO, Gerard Kleisterlee: Philips cut its business model mix from about 24 separate units to only 4 business units. At the same time, Kleisterlee began pushing Philips to get involved in emerging markets. Since 2006, shares of Philips have risen about 23% as a result of the clever changes.
Recently, the Company has focused on what Barron's called one of its biggest problems: "a lazy balance sheet". Philips has previously held about €14 billion, or more than $20 billion of liquidity. Philips decided to use of the cash by making two large acquisitions, totaled at nearly $8 billion: Respironics, for ~$5.1 billion, and Genlyte, for ~$2.7 billion. Respironics is expected to strengthen Philips' personal health care equipment division, while Genlyte should boost Philips' margins within its commercial lighting unit. Additionally, in order to utilize extra cash, the Company has recently been buying back shares of its stock.
With its portfolio of business units slimmed down, Philips now appears much more defensive. Each of its branches, save the consumer electronics division, boast double-digit margins. Such improvements have been made through a focus on sourcing components from low-cost countries such as China and Mexico. In 2005, Philips bought about 16.5% of its parts from these countries, while in 2007, the Company obtained about 27% of its parts from these regions.
Wall Street analysts are expecting Philips' EPS to grow at approximately 30% in '08 and by 15% in '09. On a valuation basis, Philips looks attractive as it is currently trading at 14x forward EPS, compared to its two-year average multiple of about 19x.
Barron's said Philips' most promising opportunity lies in emerging markets. The article concludes by pointing out that the Company grew its personal products division last year by 50% in Russia, 42% in Brazil, 29% in India and 25% in China.
Shares of Philips are benefiting from the positive Barron's article in this morning's trading session: the stock gapped open about 4% higher and has since traded flat around $39.25 since.
The article, entitled "Philips: Turning on the Lights", begins by filling in readers on how the turnaround that began several years ago has paned out. According to Barron's, Philips' turnaround began with a restructuring plan introduced by the Company's President and CEO, Gerard Kleisterlee: Philips cut its business model mix from about 24 separate units to only 4 business units. At the same time, Kleisterlee began pushing Philips to get involved in emerging markets. Since 2006, shares of Philips have risen about 23% as a result of the clever changes.
Recently, the Company has focused on what Barron's called one of its biggest problems: "a lazy balance sheet". Philips has previously held about €14 billion, or more than $20 billion of liquidity. Philips decided to use of the cash by making two large acquisitions, totaled at nearly $8 billion: Respironics, for ~$5.1 billion, and Genlyte, for ~$2.7 billion. Respironics is expected to strengthen Philips' personal health care equipment division, while Genlyte should boost Philips' margins within its commercial lighting unit. Additionally, in order to utilize extra cash, the Company has recently been buying back shares of its stock.
With its portfolio of business units slimmed down, Philips now appears much more defensive. Each of its branches, save the consumer electronics division, boast double-digit margins. Such improvements have been made through a focus on sourcing components from low-cost countries such as China and Mexico. In 2005, Philips bought about 16.5% of its parts from these countries, while in 2007, the Company obtained about 27% of its parts from these regions.
Wall Street analysts are expecting Philips' EPS to grow at approximately 30% in '08 and by 15% in '09. On a valuation basis, Philips looks attractive as it is currently trading at 14x forward EPS, compared to its two-year average multiple of about 19x.
Barron's said Philips' most promising opportunity lies in emerging markets. The article concludes by pointing out that the Company grew its personal products division last year by 50% in Russia, 42% in Brazil, 29% in India and 25% in China.
Shares of Philips are benefiting from the positive Barron's article in this morning's trading session: the stock gapped open about 4% higher and has since traded flat around $39.25 since.
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