Is Koninklijke Philips (PHG) A Great Long-Term Investment?

·3 min read

Fiduciary Management, an investment management firm, published its “International Equity Fund” fourth quarter 2021 investor letter – a copy of which can be downloaded here. The FMI International portfolios gained approximately 3.9% (gross)/3.7% (net) on a currency-hedged basis and 3.4% (gross)/3.2% (net) currency unhedged in the December quarter, compared with an MSCI EAFE Index gain of 3.91% in local currency (LOC) and 2.69% in U.S. Dollars (USD). The MSCI EAFE Value Index rose 2.35% in LOC and 1.17% in USD, trailing the MSCI EAFE Growth Indices by around 3%. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.

Fiduciary Management, in its Q4 2021 investor letter, mentioned Koninklijke Philips N.V. (NYSE: PHG) and discussed its stance on the firm. Koninklijke Philips N.V. is an Amsterdam, Netherlands-based multinational conglomerate company with a $30.2 billion market capitalization. PHG delivered a -6.68% return since the beginning of the year, while its 12-month returns are down by -36.57%. The stock closed at $34.39 per share on January 14, 2022.

Here is what Fiduciary Management has to say about Koninklijke Philips N.V. in its Q4 2021 investor letter:

"Koninklijke Philips N.V. (PHIA NA) is a top-10 global MedTech company with a strong position in diagnostic imaging, patient monitoring, respiratory care, and personal health. In normal times, the business should be able to grow the top line in the mid-single-digits, with potential to drive several hundred basis points of margin improvement. However, a €500 million sleep device product recall (to be completed by Fall 2022) has weighed heavily on the stock. In limited circumstances, including when unapproved ozone cleaning is used, a sound abatement foam component may degrade. This foam is being extensively tested for potential harmful effects (including carcinogens). Relatedly, Philips Respironics’ facility in Pennsylvania has received a Form 483 letter from the FDA with several “observations” that need to be addressed. We believe the €13 billion hit (-30%+) to the market cap far exceeds virtually all worst-case fundamental scenarios. Sleep system hardware accounts for only ~7% of the company’s sales. Prior to the recall, the stock had been trading at a sizeable discount to MedTech peers, despite having a good chance of growing earnings faster than the sector. The gap has widened dramatically, creating an attractive setup for those who are willing to see through this bump in the road."

Photo by CDC on Unsplash

Our calculations show that Koninklijke Philips N.V. (NYSE: PHG) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. PHG was in 11 hedge fund portfolios at the end of the third quarter of 2021, compared to 10 funds in the previous quarter. Koninklijke Philips N.V. (NYSE: PHG) delivered a -22.84% return in the past 3 months.

In December 2021, we also shared another hedge fund’s views on PHG in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.

Disclosure: None. This article is originally published at Insider Monkey.

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