Smart Home IoT Adoption Will Accelerate Across Emerging Markets

Key Takeaways

• International expansion of subscription services and tailored emerging market strategies are driving higher recurring and top-line revenue, positioning LG for above-expected growth.
  
• Strength in HVAC, IoT-enabled home devices, and sustainability is enabling LG to achieve higher margins, premium pricing, and sustained operating profit expansion.
  
• Rising protectionism, cost inflation, and slow innovation threaten LG's margins, revenue growth, and competitive position in increasingly saturated and price-sensitive global markets.

Catalysts

Manufactures and sells consumer and commercial products worldwide.

• Analyst consensus recognizes the positive impact of B2B subscription services and webOS platform adoption on recurring income, but this view underestimates the rapid pace at which LG is scaling these businesses internationally, with overseas subscription revenues already rising sharply and clear evidence that global, region-specific expansion can propel recurring income as a share of total revenue well above current expectations-unlocking new, higher-margin growth.
  
• Analysts broadly agree that HVAC expansion will drive revenue and margin growth, but they do not fully reflect the aggressive ramp-up in high-efficiency, AI-enabled solutions targeting global data center cooling, commercial, and industrial markets-segments where LG is already delivering record operating profits and where global demand is set to accelerate for years, likely resulting in sustained double-digit margin expansion at an enterprise level.
  
• LG's deepening presence in emerging markets, especially in Asia, India, and Latin America, combined with tailored product launches for local segments, is positioning the company to dominate fast-growing regions and capture outsized volume growth, which should materially boost both top-line revenue and drive scale efficiencies.
  
• The surging adoption of connected home devices, alongside LG's proven leadership in premium and IoT-enabled appliances, is enabling the company to capture premium pricing and recurring service revenue, resulting in robust ASP growth and the structural expansion of operating margins.
  
• LG's leadership in sustainability-evidenced by top industry certifications and eco-conscious product innovation-uniquely positions the company for long-term brand premiumization and regulatory tailwinds globally, supporting higher price realization and reduced cost-of-capital, ultimately driving structurally higher earnings and cash flow.

LG Electronics Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on LG Electronics compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming LG Electronics's revenue will grow by 7.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.0% today to 3.2% in 3 years time.
• The bullish analysts expect earnings to reach ₩3586.9 billion (and earnings per share of ₩19801.3) by about July 2028, up from ₩854.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, down from 16.7x today. This future PE is greater than the current PE for the GB Consumer Durables industry at 9.8x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.16%, as per the Simply Wall St company report.

LG Electronics Future Earnings Per Share Growth

Risks

• Rising geopolitical risks and protectionist policies, particularly increased U.S. tariffs, are causing higher logistics costs and supply chain disruptions for LG Electronics, which could result in margin compression and reduced earnings growth in the long term.
  
• The global proliferation of repair culture and second-hand markets is slowing replacement cycles for home appliances and consumer electronics, risking stagnation or decline in future revenue growth and limiting LG's addressable market.
  
• Persistent intense competition in commoditized segments like TVs and home appliances, especially from low-cost Chinese manufacturers in Asia and Europe, threatens LG's pricing power and gross margins, which could erode profitability over time.
  
• LG is highly dependent on mature product lines with limited breakthrough innovations and faces the risk of trailing global peers such as Samsung and leading Chinese brands in the launch of disruptive technologies, potentially leading to declining market share and lower revenue growth in premium categories.
  
• Industry-wide cost inflation-driven by resource scarcity in semiconductors and rare earths as well as higher energy transition-related expenses-could compress LG's net margins while market saturation in developed countries limits overall sales expansion.

Valuation

• The assumed bullish price target for LG Electronics is ₩118533.56, which represents two standard deviations above the consensus price target of ₩97269.23. This valuation is based on what can be assumed as the expectations of LG Electronics's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩123000.0, and the most bearish reporting a price target of just ₩75000.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ₩110687.8 billion, earnings will come to ₩3586.9 billion, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 11.2%.
• Given the current share price of ₩79100.0, the bullish analyst price target of ₩118533.56 is 33.3% higher.
• 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.