Societe Generale Sees 'Turning Point' For Philips, Upgrades to Buy

In a report published Tuesday, Societe Generale analyst Gael de- Bray upgraded the rating on

to Buy, while raising the price target from €26 to €29. Philips reported its 2Q earnings ahead of expectations. Analyst Gael de-Bray believes that the company is poised to reap the benefits of its reinvestments over the past one and a half years. The company's plans to exit the lighting business are underway, with an IPO or private sale expected in 1H16. "Once it is completed, Philips will be essentially refocused on its healthcare and consumer activities, regrouped under the "Healthtech" umbrella," de-Bray pointed out. "With Q2 showing a turning point for Healthcare margins, we believe investors will now be more inclined to appreciate the valuation multiple expansion potential," the analyst added. Philips is expected to emerge as an approximately €17bn sales company, with "a lower beta, steadier cash flows and higher and more resilient BITA margins." In the report Societe Generale noted, "Philips Healthcare's adjusted EBITA margin today stands below its 10-year historical range of 12-15% (LTM margin is 11.0%), but we expect margins to gradually recover in the coming quarters, supported by the Cleveland ramp-up, accelerated cost cutting and less negative FX effects." A recovery in the US healthcare market, which contributes nearly 45 percent of Philips Healthcare's sales, is expected to more than offset the negative impact of the weak market conditions in China, de-Bray added.