Shares of Royal Philips on Euronext Amersterdam surged as much as 43% Monday, the most on record after a lower-than-expected settlement in the US linked to faulty Respironics ventilators for sleep apnea.
The Dutch medical equipment manufacturer recalled the therapy devices due to concerns that the noise-canceling foam inside them was disintegrating, which patients inhaled.
Some Wall Street analysts predicted the company would have to spend as much as $4.5 billion to $10 billion to cover the medical monitoring class-action lawsuit and individual personal injury claims in the US. However, the company only had to set aside $1.1 billion.
Barclays analysts wrote in a note that this earlier-than-expected settlement "removes an overhang many have worried would linger for years."
Faulty sleep therapy devices have weighed on Philips's shares since April 2021, tumbling as much as 76% from 48 euros a share to $11.6 in October 2022. Despite today's 43% surge, shares are still down 40% from the highs recorded in 2021.
Today's 43% jump is the largest daily percentage gain ever - beating out the 14.6% gain in 2002.
The vicious upswing will likely squeeze bears. Data from S&P Global Market Intelligence shows shares out on loan, or an indication of short interest, represented about 4.9% of the company's float as of Thursday.
Here's how Wall Street responded to the news (list courtesy of Bloomberg):
Barclays (overweight)
- The $1.1b settlement compares with buyside expectations of $2b-$4b, with "worst case fears" of $10b, analyst Hassan Al- Wakeel writes in a note
- The earlier-than-expected settlement also "removes an overhang many have worried would linger for years"
Bernstein (market perform)
- The settlement amount is less than expected, while the timing is "sooner than thought," analyst Lisa Bedell Clive writes in a note
- Bernstein had been working on the assumption that there was a 35% chance of a €3.8b personal injury settlement, and a 35% chance of a €766m medical monitoring lawsuit
- The settlement "removes another overhang on the stock"
Jefferies (underperform)
- The unexpected $1.1 billion settlement is "much milder than feared," marking the "end of litigation uncertainty," analyst Julien Dormois writes in a note
- The 1Q results beat expectations, though order growth fell again
Morgan Stanley (equal weight)
- The settlement figure is below expectations and should be well received, analyst Robert Davies writes in a note
- There's scope for FY earnings estimates to be increased by low-single-digits
- Morgan Stanley sees questions being raised about the "softness" around the diagnostics & treatment performance, as well as the timeline around a resolution on the consent decree
Philips CEO Roy Jakobs joined Bloomberg TV after the settlement news. He said, "The settlement covers all the claims in the US, even the ones that would come in still over the next six months."
