We initiate coverage of the large-cap European Electricals with Outperform ratings on Philips and Schneider and Neutral ratings on ABB and Siemens. In this report, we undertake a deep dive into the Automation and Power end-markets and the respective key players, drawing on the breadth of Credit Suisse's global coverage. For the Healthcare segment and Philips specifically.
* Stock calls: In the current low-growth deflationary environment, we make the following stock calls.
- Schneider (Outperform, TP €63) – we favour its c40% exposure to a cyclical recovery in Construction via B&P and its strategic direction in Automation Software, with an undemanding valuation vs ABB and Siemens.
- Philips (Outperform, TP €26) – we expect earnings stabilisation to bring the potential Lighting IPO/disposal into focus, driving a re-rating.
- Siemens (Neutral, TP €91) – despite the self-help angle of cost-cutting and portfolio rationalisation, we think the benefits are at risk of being absorbed by tough volume and pricing dynamics in several key end-markets.
- ABB (Neutral, TP CHF 19) – we see ABB's attractive Robotics exposure, drive for margin recovery in Power Systems and large buyback as balanced out by a challenging end-markets outlook for c60% of the company and by
an already rich valuation.