Investing In AI And Premium Products Will Strengthen Competitive Edge

Key Takeaways

• LG Electronics aims to enhance revenue growth by strategically investing in market adaptations and optimizing supply chain operations.
  
• Expansion of AI solutions and webOS platform into new markets is set to boost sales and profitability.
  
• Global economic uncertainties, trade policies, and intense competition may challenge LG Electronics' profitability and revenue growth across multiple business segments.

Catalysts

Manufactures and sells consumer and commercial products worldwide.

• LG Electronics plans to strategically invest in future growth areas by adapting to market changes and optimizing supply chain operations. This is expected to improve their competitive edge and enhance revenue growth.
  
• By focusing on premium products and expanding AI-powered solutions, LG aims to drive sales and improve operating margins in their home appliance and home entertainment businesses.
  
• The expansion of the webOS platform into new markets, combined with increased investment in content and advertising, is anticipated to boost revenue and improve overall profitability.
  
• The company’s effort to optimize logistics and production in response to potential tariff challenges is likely to enhance operational efficiency and positively impact net margins.
  
• The continued investment in AI-driven PC innovations and growth in strategic IT and display products is expected to drive revenue growth and help improve earnings in the business solutions segment.

LG Electronics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LG Electronics's revenue will grow by 4.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.9% today to 2.4% in 3 years time.
• Analysts expect earnings to reach ₩2456.6 billion (and earnings per share of ₩11550.51) by about January 2028, up from ₩776.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩3598.0 billion in earnings, and the most bearish expecting ₩1434.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.3x on those 2028 earnings, down from 19.7x today. This future PE is greater than the current PE for the GB Consumer Durables industry at 10.0x.
• Analysts expect the number of shares outstanding to grow by 5.71% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.79%, as per the Simply Wall St company report.

LG Electronics Future Earnings Per Share Growth

Risks

• The looming threat of increased tariffs by the U.S. administration could significantly impact LG Electronics' production costs and supply chain efficiency, potentially resulting in reduced profit margins. Increased tariffs on products manufactured in China, Mexico, Vietnam, and Korea, where LG has significant production facilities, could lead to increased costs and lower net margins.
  
• Sluggish EV demand and potential changes in U.S. tariff policies could negatively impact the Vehicle Solutions business, as demand for LG Magna's products might not meet expectations, potentially affecting future revenue growth and profitability.
  
• The H&A business faced elevated logistics costs in 2024, affecting profitability. Although there is some optimism for cost improvement in 2025, ongoing issues like the Suez Canal disruptions could still pose a risk to logistics pricing, impacting net margins.
  
• Global economic uncertainties, including inflation and protectionism, alongside a slow demand recovery, present risks to LG Electronics’ revenue streams and cost structures. Currency fluctuations and inflation-driven cost increases may put pressure on earnings.
  
• Intense competition in the IT and ID business has resulted in decreased selling prices and profitability, and although the company plans to focus on premium products, the market dynamics could hinder LG’s ability to maintain or grow revenue and improve margins.

Valuation

• The analysts have a consensus price target of ₩118653.85 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 ₩150000.0, and the most bearish reporting a price target of just ₩85000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩102732.2 billion, earnings will come to ₩2456.6 billion, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 11.8%.
  
• Given the current share price of ₩85100.0, the analyst's price target of ₩118653.85 is 28.3% 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.