Advanced Technology And Digital Focus Will Expand Market Reach In Healthcare Apparel

Key Takeaways

• Strategic investments in sales leadership and digital channels aim to boost revenue growth and increase market share across key segments.
  
• Technology and share repurchase plans signal confidence in long-term profitability, enhancing customer experience and shareholder value.
  
• Economic uncertainty and operational challenges threaten revenue growth, margins, and earnings stability, with reliance on new customer growth posing additional risk.

Catalysts

Manufactures and sells apparel and accessories in the United States and internationally.

• The company is investing in sales leadership within the Branded Products segment to expand their market share and increase revenue growth, which is expected to have a positive impact on future revenue.
  
• Superior Group of Companies is focusing on digital channels for Healthcare Apparel, which can lead to improved revenue growth over time as they increase brand awareness and tap into a larger market. This is likely to impact both revenue and net margins positively, as digital channels often offer higher margins.
  
• The Contact Centers segment, which is the company's highest margin segment, has put a new sales team in place to target small and medium enterprises. This is expected to drive revenue growth and expand their customer base, potentially improving overall earnings due to the high margin nature of the segment.
  
• Strategic investments in advanced technology within Contact Centers are anticipated to enhance customer experience and optimize costs, which could improve long-term profitability and net margins.
  
• The authorization of a $17.5 million share repurchase plan indicates confidence in the company’s cash flow and may support earnings per share (EPS) growth by reducing the number of shares outstanding, thus increasing shareholder value.

Superior Group of Companies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Superior Group of Companies's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.1% today to 2.8% in 3 years time.
• Analysts expect earnings to reach $18.1 million (and earnings per share of $1.19) by about March 2028, up from $12.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.1x on those 2028 earnings, up from 14.8x today. This future PE is greater than the current PE for the US Luxury industry at 16.6x.
• Analysts expect the number of shares outstanding to decline by 1.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.92%, as per the Simply Wall St company report.

Superior Group of Companies Future Earnings Per Share Growth

Risks

• Economic uncertainty, including inflation, interest rates, and geopolitical conflicts, is causing customer hesitancy, which could negatively impact revenue growth and earnings stability.
  
• The potential impact of tariffs and supply chain disruptions could lead to increased costs and delayed deliveries, affecting net margins and profitability.
  
• Higher production costs, particularly in Healthcare Apparel due to manufacturing in Haiti, may pressure margins and negatively affect earnings.
  
• The Branded Products segment experienced a decline in Uniform sales due to timing issues, impacting revenue and potentially leading to variability in financial performance.
  
• The company's increased reliance on new customer growth in its Contact Centers segment introduces variability and risk, as there is a decline from existing customers despite margin improvements, potentially affecting long-term revenue stability.

Valuation

• The analysts have a consensus price target of $20.667 for Superior Group of Companies 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 $24.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $639.1 million, earnings will come to $18.1 million, and it would be trading on a PE ratio of 22.1x, assuming you use a discount rate of 8.9%.
• Given the current share price of $10.75, the analyst price target of $20.67 is 48.0% 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.