Corning’s Ready for a Recovery, Fair Value $16.50

GLW: Corning logo

Corning (NYSE:GLW) is going through a rough patch after delivering below expectations for its fourth quarter earnings. Its earnings in the short term also look riddled with problems as oversupply in the glass market is leading to a downward pressure in glass prices. This downward trend in prices is expected to continue for the better part of the year. However, we believe the current market is discounting too much of the bad news and so upside value exists in our view. The long term fundamentals still looks solid as we believe the company has innovative products like its Gorilla Glass for mobile phones that will help support growth, and the industry will rationalize for better profitability. Corning competes with companies like PPG Industries (NYSE:PPG) and 3M (NYSE: MMM).

We have a price estimate of $16.53 for Corning’s stock, which is around 22% above the current market price.

See our full analysis of the Corning stock here

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Booming sales of mobile phones

Corning’s Gorilla Glass has become the undisputed choice of smartphone manufacturers because of its thinness and ultra sensitive touch screen features. Its sales have tripled in the fourth quarter and this trend is expected to continue until 2014 on the back of increased demand for smart devices by emerging countries. Corning’s improved version of its Gorilla Glass 2 will hit the market in this quarter. It is 20% thinner and has already garnered orders from Microsoft who is planning to use it in its new Windows PC computers.

Strong financials

The company, in spite of taking a hit on its profitability, still boasts of enviable profit margins of 26%. It is projecting an increase in glass demand of 5-10% in the next quarter and expects it to keep growing through 2014. The company is cutting its capacity by 25% to better position itself to serve this booming demand. The sales of its telecommunications and life sciences divisions are expected to increase by 10% in the next quarter while its under performing segments are implementing turnaround strategies more suited to market conditions.

Ability to bounce back

We should remember that Corning has a 160 year old history in which it has gone through numerous cycles and it has reinvented itself in a myriad of ways. We believe the company can contend with the current industry difficulties and will emerge

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