Philips (PHG) Optimistic On Long-Term Growth Despite Woes

Earlier this month, Koninklijke Philips N.V.’s (NYSE:PHG) President and CEO, Frans van Houten, had expressed discontent about the pace of adoption of connected care products. This is particularly alarming, considering the premium health-service provider has concertedly streamlined its massive business empire to focus mainly on healthcare.

The company believes that the present structure of insurance institutions, which focuses on reimbursing critical care and not prevention of incidents, has played a major spoilsport in thwarting investments. Despite these concerns, Houten remains bullish that long-term growth drivers are intact and the upcoming quarters should witness a rebound in connected-care businesses.

Shares of the company have returned 22.7% in the last six months, outperforming the Zacks categorized Products-Miscellaneous industry’s average gain of 14.5%. Also, the consensus analyst community is showing favor toward the stock as the Zacks Consensus Estimate for full-year 2017 earnings has inched up from $1.56 to $1.57, supported by one upward estimate revisions versus zero downward.

Read on to take a closer look on the long-term growth drivers and the major profit churners for this Zacks Rank #3 (Hold) company.

Growth Drivers

Philips remains optimistic about the prospects of its Diagnosis & Treatment vertical on account of positive industry trends as Image-Guided Therapy and Ultrasound equipment sales are acting as major profit churners. To make the most of these favorable trends, the company recently launched the Philips Azurion, its next-generation image-guided therapy platform, to boost sales.

Overall, the company is optimistic that higher levels of quality and regulatory expenditure in the first half of 2017 will drive growth for this vertical. Also, Philips has been focusing on bolt-on acquisitions to fortify its core business. Previously acquired companies, including the Volcano and PathXL, have been contributing significantly toward the company’s sales.

Recently, Philips made two acquisitions — Australian Pharmacy Sleep and U.S. based firm, Respiratory Technologies — to enhance its respiratory- and sleep-care portfolio. In addition, the company’s Connected Care & Health Informatics vertical is also progressing well and seeing particular strength in Patient Care & Monitoring Solutions. Furthermore, Philips is looking for opportunities in the budding image-guided minimally-invasive domain.

To foster the development of interventional cardiology, Philips entered into a five-year interventional cardiology solutions agreement with DeltaHealth in China. This apart, the company’s Healthcare Informatics Solutions & Services margins have been improving constantly as Philips is transforming from a hardware-oriented to a software-driven business, which is a higher margin model with a stream of recurring revenues.

Stocks to Consider

Some better-ranked stocks in the broader sector include Cohu, Inc. (NASDAQ:COHU) , Motorola Solutions, Inc. (NYSE:MSI) and NCR Corporation (NYSE:NCR) . While Cohu sports a Zacks Rank #1 (Strong Buy), Motorola Solutions and NCR Corporation hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cohu has a striking earnings surprise history, with an outstanding average positive surprise of 121.2% for the trailing four quarters, beating estimates all through.

Motorola has a striking earnings surprise history for the last four quarters, having beaten estimates all through, for an impressive average beat of 16.6%.

NCR also has an excellent earnings surprise history, with an average beat of 11% for the trailing four quarters, beating estimates all through.

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