Corning is a technology based corporation and is a global leader in display technologies and high fiber optics. It produces glass components, such as substrates for active matrix liquid crystal displays (LCDs), for use in LCD televisions, notebook computers and desktop monitors. It also manufactures optical fiber and cable, and hardware and equipments products for the telecommunication industry. Additionally, Corning operates in other segments such as environmental technologies and provides solutions for emission control in mobile and stationary applications.
Corning reports financial results in the following five major segments:
| Segment | Percentage of Sales (2008) |
| Display Technology Segment | 46% |
| Telecommunication Segment | 30% |
| Environmental Technology Segment | 12% |
| Specialty Materials Segment | 6% |
| Life Sciences Segment | 6% |
Corning’s business is built on innovation and Corning has excelled in this area. As an example, glass substrate innovations at Corning have helped reduce the cost of LCD televisions thereby increasing TV sales. This in turn has increased the demand for Corning products.
An unexpected change in consumer demand is aiding Corning’s strong recovery. On May 28, Corning reported a better than expected increase in demand for its LCD glass. Additionally, last month, Corning raised its guidance of glass sales from 2 billion square feet in 2008 to approximately 2.2 billion square feet in 2009. It also doubled its forecast for growth of LCD television units from 9% to 18%. This indicates the improving conditions of the Asian and US consumer (Corning derives more than 50% of its revenue from Asia).
Corning has a solid balance sheet with $2.8 Billion in cash and $1.6 Billion in debt at the end of 2008. It pays a quarterly dividend of 5 cents yielding 1.4% a year.
The table that follows presents the company fundamentals.
Company Fundamentals
| | GLW |
| Market Cap (Millions) | $22,000 |
| Sales (Millions) | $5,320 |
| EPS | $2.66 |
| Net Profit Margin | 57% |
| Return on Equity | 36% |
During the last five years, Corning increased its revenue at an annual rate of 14%. Analysts estimate that Corning would continue to grow at an annual rate of 14% which is in line with its peers and higher than the projected annual growth rate of 10% for the S&P 500 index. The EPS estimates for the Corning are shown below:
EPS Estimates
| | GLW |
| TTM EPS | $2.66 |
| 2009 Average EPS Estimate | $0.86 |
| 2010 Average EPS Estimate | $1.19 |
Fair value calculation was performed using relative valuation. The estimated fair value using various methods is presented in the table that follows. It should be noted that the data from the last four financial years was taken in calculating the averages shown in the table.
Valuation
| | GLW | ||
| Existing | Average | Fair Value | |
| P/E | 5.35 | 22.86 | $20 |
| P/S | 4.15 | 5.45 | $19 |
| (P/E) / (P/E – S&P 500) | 0.32 | 1.00 | $14 |
| PEG | 0.85 | 1.14 | $14 |
The Call:
I am initiating coverage of Corning with a BUY rating and a 12-month price target of $18 derived by applying a multiple of 15 to 2010 average analyst EPS estimates. At these levels, GLW would be trading in line with the S&P500 index, and at a slight discount to its historic PEG ratio.
Disclosure: Long GLW
