Expansion Into Smart Glasses And Med-Tech May Boost Future Earnings Despite High PE Ratios

Key Takeaways

• Strategic expansion in smart glasses and med-tech could drive revenue growth and improve net margins through higher profit margins and innovative products.
  
• Strong potential revenue growth from myopia management lenses in China and Europe, with expansion plans into the U.S. market likely to boost market share.
  
• Strong revenue growth through strategic expansion into new categories, product innovation, and diversified offerings, supported by technology investments and market development.

Catalysts

Designs, manufactures, and distributes ophthalmic lenses, frames, and sunglasses in Europe, the Middle East, Africa, Latin America, the Asia-Pacific, and North America.

• EssilorLuxottica plans to expand its smart glasses category, including the Ray-Ban Meta glasses, by increasing production capacity to reach 10 million units annually by the end of next year, indicating anticipated growth in sales volumes that could bolster revenue.
  
• The company's strategic focus on the med-tech space, particularly in diagnostics and eye treatment technologies, is expected to drive future growth and contribute positively to net margins through potentially higher profit margins than traditional eyewear sales.
  
• EssilorLuxottica's introduction of new technological innovations in smart glasses and hearing aids, such as the launch of Nuance Audio with FDA clearance in the U.S., is projected to enhance revenue streams and could improve overall earnings.
  
• The strong growth trajectory of the Stellest myopia management lens, particularly in China and Europe, highlights potential revenue growth opportunities as EssilorLuxottica expands into the U.S. market, likely positively impacting revenue and market share.
  
• The strategic expansion of their brand portfolio through e-commerce and retail, along with collaborations like those with Meta, might drive incremental revenue growth and profit expansion, leveraging brand strength and distribution capabilities across various markets.

EssilorLuxottica Société anonyme Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EssilorLuxottica Société anonyme's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.9% today to 12.3% in 3 years time.
• Analysts expect earnings to reach €4.0 billion (and earnings per share of €8.56) by about February 2028, up from €2.4 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €4.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.3x on those 2028 earnings, down from 57.0x today. This future PE is greater than the current PE for the GB Medical Equipment industry at 34.3x.
• Analysts expect the number of shares outstanding to grow by 0.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.63%, as per the Simply Wall St company report.

EssilorLuxottica Société anonyme Future Earnings Per Share Growth

Risks

• EssilorLuxottica's revenue has maintained a solid growth trajectory, with notable organic growth and expansion in new categories like medical applications and wearables, which could support revenue stability and growth.
  
• The successful launch and increasing use of Ray-Ban Meta smart glasses, with a goal of producing 10 million units annually, demonstrate growing consumer interest that could drive revenue and earnings from digital and wearable categories.
  
• The company's strategic focus on expanding the eyecare segment, including products like Stellest lenses, which have shown significant growth, indicates potential for increased revenue and enhanced net margins through new markets and product lines.
  
• Continued investments in technology and innovation, combined with enhanced supply chain and new partnerships, strengthen competitive positioning, potentially fueling earnings and maintaining or improving profit margins.
  
• Expanding product offerings, including the introduction of hearing aid glasses and collaborations on smart glasses, create diversified revenue streams that could enhance overall profitability and attract new consumer segments.

Valuation

• The analysts have a consensus price target of €256.158 for EssilorLuxottica Société anonyme based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €311.0, and the most bearish reporting a price target of just €173.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €32.9 billion, earnings will come to €4.0 billion, and it would be trading on a PE ratio of 35.3x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of €294.5, the analyst price target of €256.16 is 15.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.