Is The Market Pricing Corning’s Stock Fairly?

Corning Incorporated (NYSE: GLW) specializes in specialty glass, ceramics and related materials, besides technologies like advanced optics, primarily for industrial and scientific applications. Trefis has a price estimate of $32 for Corning’s Stock, which is 10% ahead of the current market price. Our price estimate takes into account the latest earnings as well as the updated guidance. We have detailed the key components of Corning’s valuation in an interactive dashboard, along with our forecast for full-year 2019.

Corning posted a better-than-expected performance in Q3 2019 with core sales of $2.9 billion, down 2% y-o-y, even as core EPS slid 14% to $0.44 y-o-y as a result of sales decline for its Optical Communication and Display Technologies segments. However, Corning continued to achieve steady growth in its Specialty Materials, Life Sciences, and Environmental Technologies segments.

Below we provide a detailed explanation of the key factors that impact the company’s valuation:

#1 Optical Communication Segment Will Report Year-Over-Year Decline In Revenues

• Optical Communications is the company’s largest segment-accounting for more than one-third of the company’s revenues. After delivering strong performance in the first two quarters of 2019, the segment’s revenue declined by 10% y-o-y in Q3 2019 to $1 billion.
• This decline can be attributed to overall market weakness driven by reduced customer project spending – primarily in carrier networks.
• We expect the segment’s revenue to decline 3% for the full year to $4 billion primarily due to capital spending reductions in both the carrier and enterprise markets.

#2 Environmental Technologies Segment Will Continue To Achieve Steady Growth

• Environmental Technologies segment delivered a strong performance in Q3, with net sales surging 20% y-o-y to $397 million thanks to accelerating adoption of gasoline particulate filters (GPFs) and due to growth in heavy-duty diesel.
• GPFs demand continues to remain strong in the European countries owing to the adoption of the stringent European emission standards by auto manufacturers. Corning expects to double its sales to the auto industry by 2023.
• Notably, though, Corning will continue to invest in its GPF business which will weigh on the segment’s profitability in the short-term but should result in greater sales and profit growth in the medium- and long-term.
• Taking all this into account, this segment looks poised for strong growth in the coming years.

#3 Specialty Materials’ Growth Likely To Slow Down

• Specialty Materials had a rather soft Q3 2019
• Revenues increased just 1% y-o-y to $463 million mainly driven by a steady demand for the company’s portfolio of mobile consumer electronics glass solutions.
• However, overall sales growth of the segment has been muted due to lower Gorilla Glass shipments to China – something that can be attributed to the ongoing trade-tension between the US and China.
• Moreover, advanced optic sales have also slowed down due to semiconductor market weakness.
• Taking all this into consideration, we expect the segment’s revenues to grow in the low single-digit range in 2019 as opposed to an average growth rate exceeding 10% achieved over 2016-18.

Additional details about trends in Corning’s Display Technology, Life Sciences and Other segments are available in our interactive dashboard.

Per Trefis estimates, Corning’s adjusted EPS for 2019 is likely to be $1.73. Taken together with a P/E multiple of 18.4x, this works to a fair value of $32 for Corning’s stock which is about 10% ahead of the current market price.

We also highlight how Corning’s P/E multiple has trended over the years, and compare this key metric with that for its peers 3M and DuPont in our interactive dashboard.

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