VALUATION HIGHLIGHTS

1. Optical Communications constitute 35% of the Trefis price estimate for Corning's stock.
2. Display Technologies & Others constitute 27% of the Trefis price estimate for Corning's stock.
3. Environmental Technologies constitute 17% of the Trefis price estimate for Corning's stock.

WHAT HAS CHANGED?

1. GLW Stock Performance

GLW stock has seen a decline of 15% from levels of $35 in early January 2021 to around $30 now (Feb 1, 2024), vs. an increase of about 30% for the S&P 500 over this roughly 3-year period.

However, the decrease in GLW stock has been far from consistent. Returns for the stock were 3% in 2021, -14% in 2022, and -5% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 - indicating that GLW underperformed the S&P in 2021 and 2023.

2. Q4 2023 Earnings

Corning posted mixed results in Q4 2023, with revenues above and earnings marginally below expectations. The company reported sales of $3.0 billion (down 12% y-o-y). While display technologies sales were up 11%, optical communications sales were down 24%. Looking at the bottom line, the company's adjusted EPS stood at $0.39, compared to $0.47 in the prior-year quarter.

3. Impact of Coronavirus On Corning's Stock

Corning stock lost more than 40% dropping from $30 at the beginning of 2020 to below $18 in late March 2020, owing to the pandemic. It then nearly spiked 50% to around $27 now (through late-October, 2023). That means it is above the pre-pandemic levels.

Why? While the Covid-19 outbreak and associated lockdowns resulted in an uncertain outlook for the broader markets, the multi-billion-dollar Fed stimulus announced in late March 2020 helped the markets stage a strong recovery. There was a quicker economic rebound, with economies opening up gradually, given the rise in the global vaccination rate.

However, higher inflation in 2022 led to the Fed raising interest rates, and economic growth is expected to slow down in the near term, likely impacting the near-term sales growth for Corning.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Corning's divisions that present opportunities for upside or downside to the current Trefis price estimate for Corning:

Corning's Display Technology Revenues: Corning's Display Technologies revenues have fluctuated in recent years due to competitive pressure as well as the impact of acquisitions and divestitures. The figure stood at $4.5 billion in 2022. Looking forward, we expect the figure to increase gradually to around $6.5 billion by the end of our review period in 2029. If, however, Corning's display technology revenues were to cross $9.5 billion due to potential manufacturing cost advantage in a period of declining prices, better uptake of its display panels, and solid growth from a newer generation of glass, it could lead to a potential upside of 15% to our price estimate.

The company's three smaller segments have all been growing faster than the underlying industries on account of a myriad of reasons:

- Environmental Technologies' growth was driven by the adoption of Corning's proprietary gasoline particulate filter (GPF) innovation.

- Specialty Materials growth was led by the adoption of industry-leading cover glass innovations despite smartphone unit sales being down 3%.

- Life Sciences reached a $1 billion sales milestone in 2019, growing at nearly twice the rate of a strengthening market on account of newer applications, especially in growth categories like cell culture and gene therapy.

BUSINESS SUMMARY

Corning is a global technology company that manufactures and processes a variety of products at approximately 119 plants in 15 countries. It makes money primarily through its joint ventures, Samsung Corning and Dow Corning. Samsung Corning manufactures glass substrates for displays which are primarily used in notebook computers, flat-panel desktop monitors, and televisions. Dow Corning manufactures silicone products. Corning's other business segments include environmental technologies, life sciences, and telecommunications.

SOURCES OF VALUE

The display technologies business is the largest contributor to Corning's value.

Corning's expertise in glass substrate manufacturing

Corning's Display Technologies segment accounts for nearly 32% of the company's value. Its proprietary fusion-based process produces high-quality glass substrates that are highly uniform, clean, light-weight, and thin, which are important qualities required for manufacturing display screens. The process enables Corning to produce large-sized substrates in a cost-effective manner.

Innovative products help maintain market leadership

Corning continually invests in R&D to develop innovative products to cater to the demands of display panel manufacturers. Corning launched a new project named Gorilla Glass Victus, its latest version of Gorilla Glass, which is more scratch-resistant than a sapphire-based cover glass and stronger than earlier versions of Gorilla Glass. Gorilla Glass Victus survived drops onto hard and rough surfaces from up to two meters.

KEY TRENDS

Display glass prices

Glass manufacturing is a commoditized business where prices are determined solely by factors of supply and demand. Innovations in display glass technology and manufacturing overcapacity have put downward pressure on prices. However, the pricing environment improved in 2022.

Growth in consumer demand for television in emerging markets

Notebook, tablet PC, and television penetration remain low in most emerging markets and developing nations. We expect this demand to increase and drive the growth in global glass shipments.

Demand for large sized displays

Consumers prefer larger displays on their TVs, notebooks, tablets, and mobile phones because of the enhanced viewing pleasure. This may drive an increase in demand for television glass and thereby increase shipments. The demand for large-screen televisions is also likely to be driven by new technologies such as Ultra HD, 4K, and 8K, which provide enhanced viewing pleasure on large screen sizes.

High replacement rate for television in developed markets

The replacement rate for tablets, notebook PCs, and televisions remains high in developed markets. This is expected to create demand for new panels and hence increase the total number of shipments.

Investment in new technologies for maintaining competitive advantage

Corning believes it has sustained its competitive advantages in glass substrate products by investing in new technologies. This is likely to continue and could keep costs high.

Stringent emission standards drive demand for better filters

To ensure compliance with emission standards, automobile manufacturers resort to the use of emission control systems. As these standards get even stricter, automobile manufacturers have to upgrade to newer and more effective emission control systems in order to remain compliant. This has a positive impact on the automotive exhaust systems market, which includes manufacturers of automotive substrates and filters.