Why Koninklijke Philips Stock Jumped 14% Today

Koninklijke Philips (NYSE: PHG) stock surged 14.5% through 10:05 a.m. ET Monday after the company reported strong earnings this morning.

Analysts had forecast the Dutch medical devices company would earn $0.27 per share on sales of $4.8 billion, according to data from Yahoo! Finance. Philips' sales of 4.5 billion euros roughly matched that prediction. Net earnings were 452 million euros -- about 0.48 cents per share -- which works out to about $0.52 per share.

Philips' Q2 earnings

Management painted a picture of modest sales growth (up 2% year over year) that is nevertheless accelerating. Segment by segment, Philips' diagnosis and treatment division performed best with sales growth of 4%. The connected care and personal healthcare divisions both showed only 2% growth. Still, despite slow sales in the quarter, Philips said that "comparable order intake" rose 9% year over year in Q2 2024, foreshadowing faster growth ahead.

CEO Roy Jakobs indicated that he is "encouraged by our return to order intake growth this quarter, primarily driven by North America."

Is Philips stock a buy?

Philips predicts comparable sales will grow anywhere from 3% to 5% this year, confirming the trend indicated by rising order uptake. The company expects adjusted earnings before interest, taxes, depreciation, and amortization ( EBITDA ) to hold more or less steady with Q2's 11.1% rate, so earnings should grow roughly as fast as sales do.

Although Philips burned cash in the second quarter of the year, management sees this improving as sales accelerate. By the end of 2024, Philips predicts it will have generated about 1 billion euros in positive free cash flow -- about $1.1 billion. At Philips' current $24.1 billion market cap, this works out to a price-to-free-cash-flow ratio of 22.

Is that a fair price to pay for a 2% (or even 4% -- or 9%) grower, paying no dividends and carrying $7 billion in net debt? I personally don't think so. It seems expensive to me. But apparently I'm in the minority today.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .