Subscription Services And HVAC Expansion Will Build Our Future

Key Takeaways

• Emphasizing B2B subscriptions and webOS is expected to drive stable revenue growth with recurring income streams.
  
• Strategic focus on HVAC expansion and AI innovations should enhance revenue and profitability through high-margin services and market growth.
  
• Changes in tariffs, FX volatility, cost increases, and stagnant demand could hurt LG's profits, while IPO delays in India may limit growth opportunities.

Catalysts

Manufactures and sells consumer and commercial products worldwide.

• The transformation of LG's portfolio to emphasize B2B subscription services and the webOS platform is expected to fuel revenue growth by increasing the proportion of stable, recurring income streams.
  
• Expansion efforts in the HVAC business are anticipated to further drive revenue growth and improve net margins due to stable, high-margin service contracts.
  
• Optimizing production locations in response to U.S. tariff policy changes and increasing operational efficiencies could lead to improved net margins by reducing cost pressures.
  
• Continued investment in high-demand areas such as AI data center cooling solutions is likely to boost future revenue and profitability by tapping into a growing market.
  
• Exploring strategic partnerships, like those with Microsoft, is expected to enhance sales and profitability through product differentiation and expansion in AI and high-tech segments.

LG Electronics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LG Electronics's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.1% today to 2.6% in 3 years time.
• Analysts expect earnings to reach ₩2543.5 billion (and earnings per share of ₩11731.46) by about May 2028, up from ₩967.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩3122.0 billion in earnings, and the most bearish expecting ₩983.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, down from 13.3x today. This future PE is greater than the current PE for the GB Consumer Durables industry at 9.6x.
• 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 12.0%, as per the Simply Wall St company report.

LG Electronics Future Earnings Per Share Growth

Risks

• Changes in U.S. tariff policies pose a risk of increased costs and intensified competition, possibly impacting LG's net margins if they cannot offset these through price adjustments or cost efficiencies.
  
• Persistently high FX volatility and rising costs threaten LG's operational efficiency, which could strain net margins and hurt earnings if not managed effectively.
  
• Stagnation in vehicle and television demand, alongside sluggish EV sales, presents a risk to revenue growth, potentially leading to lower overall earnings.
  
• Delays in the Indian IPO amidst economic uncertainties may limit LG's ability to capitalize on growth opportunities in critical markets, impacting future revenue prospects.
  
• Rising raw material and logistical costs, compounded by tariff risks, could squeeze LG's profits, especially if consumer sentiment declines, leading to pressure on operating profit margins.

Valuation

• The analysts have a consensus price target of ₩104192.308 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 ₩130000.0, and the most bearish reporting a price target of just ₩82000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩99484.1 billion, earnings will come to ₩2543.5 billion, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 12.0%.
  
• Given the current share price of ₩71400.0, the analyst price target of ₩104192.31 is 31.5% 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.