Philips (PHG) Signs Deal To Acquire Electrical Geodesics

Koninklijke Philips N.V. (NYSE:PHG) recently announced that it has inked an agreement to buy U.S.-based medical device company, Electrical Geodesics, Inc., for a total value of GBP29.0 million. This acquisition is likely to enhance the premium health technology provider’s imaging technologies and advanced informatics portfolio, used in neurological applications.

The Deal in Detail

Philips has made an offer of 105.4 pence in cash for each Electrical Geodesics share held. This represents about 36% premium of Electrical Geodesics’ closing value on Jun 21 in London. The transaction, scheduled to close in third-quarter 2017, is subject to customary closing conditions and stockholder approval.

Electrical Geodesics, which generated sales of $14.3 million in 2016, has a robust array of EEG platform technology. This offers the company a competitive edge over peers. These technologies have got clearance in the U.S., the EU and a number of other major international regulatory bodies. These are also being extensively deployed as research tools by leading healthcare service providers.

Philips asserts that the combined portfolios will help in the treatment of life-threatening neurological disorders such as stroke, epilepsy and Parkinson’s disease. The company believes that this strategic buyout will help it develop an integrated neurology solution, comprising diagnostic imaging and clinical informatics. This will assist medical personnel in developing a comprehensive map of the brain, assess its anatomy and measure electrical activity seamlessly.

In a recent survey by Markets and Markets, it has been reported that the global diagnostic imaging market is expected to reach $36.43 billion by 2021, at a CAGR of 6.6%. Factors, including grants from government bodies, higher investments by public-private organizations and growing number of diagnostic imaging centers, are anticipated to fuel the market's growth.

Acquisitions to Accelerate Growth

Over the past couple of quarters, Philips fortified its presence in the healthcare domain. To that end, the company has often turned to bolt-on acquisitions in order to stoke inorganic growth. Shares of the company have returned 20.3% in the last six months, outperforming the Zacks categorized Electronic-MiscellaneousComponents industry’s average gain of 12.9%.

Last year, the company acquired U.S.-based population health management software solutions provider, Wellcentive, to leverage on its cloud-based IT solutions. In 2017, it inked agreements with Australian Pharmacy Sleep Services and Respiratory Technologies, Inc. While the Wellcentive buyout is likely to help Philips expand the geographical footprint of its Sleep & Respiratory Care unit, Respiratory Technologies is expected to enhance its respiratory care portfolio as well.

The latest Electrical Geodesics acquisition is in line with the company’s ambition to fortify its footprint in the budding image-guided minimally invasive domain. Overall, Philips is optimistic about the prospects of its Diagnosis & Treatment vertical. This is because the company's Image-Guided Therapy and Ultrasound equipment are witnessing solid sales.

This apart, the Zacks Rank #2 (Buy) company’s Healthcare Informatics Solutions & Services margins have been improving constantly. This is because Philips is transforming from a hardware-oriented to a software-driven business, which is a higher margin model with a stream of recurring revenues. Encouragingly, the consensus analyst community is favoring the stock. The Zacks Consensus Estimate for full-year 2017 earnings has trended up from $1.53 to $1.57, supported by one upward estimate revision versus zero downward.

Other Stocks to Consider

Other top-ranked stocks in the broader sector include Applied Materials, Inc. (NASDAQ:AMAT) , Cohu, Inc. (NASDAQ:COHU) and Ubiquiti Networks, Inc. (NASDAQ:UBNT) . While Applied Materials and Cohu sport a Zacks Rank #1 (Strong Buy), Ubiquiti holds a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

With four back-to-back beats, Applied Materials has an average positive surprise of 3.3% for the trailing four quarters.

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

Amkor Technology beat earnings estimates in three out of the trailing four quarters at an average of 43.1%.

Ubiquiti has a solid earnings surprise history for the trailing four quarters, having beaten estimates thrice, for an average beat of 13.3%.

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