Investments In EV Charging And Robotics Will Drive Future Opportunities

Key Takeaways

• Strategic focus on high-growth platforms and premium product sales aims to boost revenue and improve margins, aligning with long-term profit goals.
  
• Commitment to shareholder returns through dividends and share buybacks, alongside expansion in new business areas, aims to enhance investor sentiment and earnings stability.
  
• Rising logistics costs, delayed EV demand recovery, and competition from Chinese brands pose challenges to LG Electronics' profitability and growth.

Catalysts

Manufactures and sells consumer and commercial products worldwide.

• LG Electronics plans to pursue high-growth platforms, B2B businesses, and emerging market segments, aligning with mid
• to long-term goals to significantly increase revenue and operating profit contributions by 2030. This strategy is likely to impact revenue growth positively.
  
• The company's commitment to a minimum dividend and share buyback strategies aim to enhance shareholder returns, which could positively impact earnings and investor sentiment.
  
• Expansion in the subscription business, particularly in large appliances, shows strong potential with over 50% growth, enhancing revenue streams and contributing to stable profits.
  
• LG's strategic focus on premium product sales in Home Entertainment, like OLED and QNED TVs, amidst market recovery, is expected to improve both revenue and net margins through increased high-margin product sales.
  
• Investments in innovative areas like EV charging and robotics business, despite short-term challenges, show potential for significant revenue and profitability growth in the mid-to-long term.

LG Electronics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LG Electronics's revenue will decrease by -13.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.0% today to 7.0% in 3 years time.
• Analysts expect earnings to reach ₩4012.4 billion (and earnings per share of ₩23309.53) by about December 2027, up from ₩880.0 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₩2024.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.9x on those 2027 earnings, down from 17.6x today. This future PE is lower than the current PE for the GB Consumer Durables industry at 11.8x.
• Analysts expect the number of shares outstanding to decline by 1.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.75%, as per the Simply Wall St company report.

LG Electronics Future Earnings Per Share Growth

Risks

• Rising logistics costs and LCD panel prices, along with fixed costs from delayed EV component sales, have pressured LG Electronics' operating profit, potentially impacting net margins.
  
• Delayed recovery in EV demand and market stagnation in this sector may affect revenue growth targets, particularly as LG Electronics aims to boost its vehicle component solutions.
  
• Global macroeconomic uncertainties, including geopolitical tensions that could drive oil price fluctuations, pose risks to LG's earnings and revenue forecasts.
  
• Increased competition from Chinese TV brands, which are gaining market share with low-cost entry-level products, may challenge LG's market position and affect revenue from its Home Entertainment division.
  
• Negative cash flow from investment activities and a decline in cash balance highlight potential challenges in maintaining liquidity, impacting the company's ability to fund future growth and sustain earnings.

Valuation

• The analysts have a consensus price target of ₩132111.11 for LG Electronics 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 ₩160000.0, and the most bearish reporting a price target of just ₩105000.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₩57561.5 billion, earnings will come to ₩4012.4 billion, and it would be trading on a PE ratio of 7.9x, assuming you use a discount rate of 11.8%.
• Given the current share price of ₩85900.0, the analyst's price target of ₩132111.11 is 35.0% 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.