Driving Growth In Healthcare Apparel And Branded Products Amid Talent And Tech Investments

Key Takeaways

• Solid financial foundation and improved net leverage position the company for strategic investments and positive revenue and earnings growth.
  
• Strategic investments in market share, technology, and customer retention across segments are set to drive revenue and increase profitability.
  
• Geopolitical, supply chain, and cost pressures could challenge revenue growth and profitability amid rising costs and customer caution in a fragmented market.

Catalysts

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

• The company's financial strength and improved net leverage ratio indicate a solid foundation to continue strategic investments in growth opportunities within its expanding market segments. This is likely to positively impact future revenue and earnings.
  
• Superior Group of Companies is focusing on taking market share in large, fragmented markets, investing in people, products, technology, and customer retention, which could drive future revenue growth.
  
• In the Healthcare Apparel segment, growing online channels and improved gross margins through strategic sourcing could lead to higher net margins and profitability.
  
• The Branded Products segment is expanding its customer base and benefitting from improved sourcing and pricing, which could enhance revenue and margins moving forward.
  
• The Contact Centers segment is investing in talent and technology to enhance customer experience and efficiency, aiming to grow its customer count, particularly among SMEs, which could boost future earnings.

Superior Group of Companies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Superior Group of Companies's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.4% today to 3.5% in 3 years time.
• Analysts expect earnings to reach $22.5 million (and earnings per share of $1.45) by about November 2027, up from $13.5 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 19.3x on those 2027 earnings, down from 19.8x today. This future PE is greater than the current PE for the US Luxury industry at 18.2x.
• Analysts expect the number of shares outstanding to decline by 1.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.99%, as per the Simply Wall St company report.

Superior Group of Companies Future Earnings Per Share Growth

Risks

• Ongoing geopolitical conflicts and uncertainty surrounding inflation and interest rates could influence customer hesitancy, impacting future revenue growth and profitability for Superior Group of Companies.
  
• Supply chain issues previously caused revenue shifts, and persistent global logistics delays, such as container shortages, could lead to fluctuations in future revenues and earnings.
  
• Increased costs related to supply chain logistics and production could negatively affect gross margins and overall profitability.
  
• The Contact Centers segment experienced a decline in EBITDA margin due to increased agent costs and investments in talent, which could lead to lower profitability if not offset by revenue growth.
  
• Customer caution and budget management, particularly among Branded Products, may limit revenue growth despite the opportunity to take market share in a highly fragmented market.

Valuation

• The analysts have a consensus price target of $23.0 for Superior Group of Companies based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $639.3 million, earnings will come to $22.5 million, and it would be trading on a PE ratio of 19.3x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $16.32, the analyst's price target of $23.0 is 29.0% 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.