Philips Now Has More Problems Than Just The DreamStation Recall

 

Next to "it's different this time", "it likely won't get any worse" (or "how much worse can it get?") are probably the most dangerous words in investing, and the experience at Philips (PHG) shows the dangers of trying to pick a bottom when there is a significant negative, hard-to-quantify event - a major product recall in this case - underway.

Philips shares have lost another 30% of their value since my last update, and not only has the DreamStation 1 recall situation gotten arguably worse, the company has also underperformed on its ongoing fundamentals. That dredges up a lot of unpleasant memories related to past execution missteps and inadequacies and raises legitimate questions about whether Philips really has changed for the good.

Even with negative revisions to my margin estimates and discount rate (to account for greater risk/uncertainty), the shares do still screen as undervalued, but it wouldn't be hard to argue that this is a "cheap for a reason" case with not much to drive substantially better near-term sentiment.

 

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Philips Now Has More Problems Than Just The DreamStation Recall