Can Phillips Stock Move Higher?

With shares of Phillips (NYSE:PHG) trading around $32, is PHG an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Phillips is a Netherlands-based provider of healthcare, lighting, and consumer lifestyle businesses worldwide. The company operates within the following main business sectors: Healthcare, Consumer Lifestyle, Lighting, and Group Management and Services. The Healthcare sector offers both personal care and professional products, such as computer tomography equipment, radiography equipment and refurbished systems, among others. The Consumer Lifestyle sector offers a range of sound, vision, and household products such as television, headphones, and digital cameras, among others. The Lighting sector offers lighting products such as professional lamps, ballasts, luminaires, and more. The Group Management & Services sector provides the operating sectors with support through shared service centers.

Philips shares have fallen as the Dutch electronic and healthcare company’s forecasts fell short of expectations. The company said it plans to buy back $2 billion worth of its own shares and will grow sales between 4 and 6 percent through 2016, according to the Wall Street Journal. Philips has been restructuring, cutting jobs and expenses, and focusing on its main products like hospital scanners and LED lights. Some criticized Chief Executive Frans van Houten, saying he could have made more optimistic predictions, but he responded that the targets are “balanced, responsible, and we’re also able to deal with some contingencies.”

T = Technicals on the Stock Chart Are Strong

Phillips stock has struggled to make significant progress in the last several years. The stock has been trading sideways for most of the last several months as it establishes a value range. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Phillips is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

PHG

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Phillips options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Phillips Options

35.39%

96%

95%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

October Options

Flat

Average

November Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Phillips’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Phillips look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

233.40%

-18.18%

-132.11%

114.60%

Revenue Growth (Y-O-Y)

6.36%

-4.63%

9.11%

8.35%

Earnings Reaction

2.21%

-5.02%

3.45%

6.63%

Phillips has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been upbeat about Phillips’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Phillips stock done relative to its peers, General Electric (NYSE:GE), Siemens (NYSE:SI), OSI Systems (NASDAQ:OSIS), and sector?

Phillips

General Electric

Siemens

OSI Systems

Sector

Year-to-Date Return

23.10%

16.34%

8.03%

16.30%

14.61%

Phillips has been a relative performance leader, year-to-date.

Conclusion

Phillips engages in the  healthcare, lighting, and consumer lifestyle businesses around the world. The company is being scrutinized because forecasts are falling short of expectations. The stock has struggled in recent years and is current trading sideways as it plans for its next move. Over the last four quarters, earnings have been mixed while revenues have been rising, which has maintained investors’ upbeat outlook about the company. Relative to its peers and sector, Phillips has been a year-to-date performance leader. WAIT AND SEE what Phillips does this coming quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.