Is Corning A Good Buying Opportunity After A 23% Correction?

by Trefis Team
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Corning
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Corning (NYSE: GLW), best known for its gorilla glass, display panel, and optical fiber, has seen its stock fall more than 23% year-to-date, as the coronavirus pandemic is expected to have a meaningful impact on its businesses. Corning’s stock also remains down by about 23% from levels seen in early 2018, a little over 2 years ago. Although Corning’s glass business could be impacted by a decline in consumer discretionary spending, the company’s stock could warrant a look at this price point, given its relatively impressive past track record of growth, and a sizeable decline in its P/E Multiple. Our dashboard, ‘What Factors Drove -23.3% Change In Corning Stock Between 2017 And Now?‘, has the underlying numbers.

Strong Fundamentals But Stock Down

Corning’s revenue grew 14% over the last 2 years, rising from around $10.1 billion in 2017 to about $11.5 billion in 2019. The company’s adjusted net income (as reported in the company’s SEC filings) remained flat at $1.6 billion over the same period, driven by higher revenues, and being more than offset by a 15.1% decline in net income margin from around 16.2% to 13.7%.  EPS grew by 9.7% over the same period to $1.76, with an 11.9% decline in number of shares. However, despite the growth in its financials, Corning’s stock price depreciated due to the contraction of its P/E multiple from levels of around 19x in 2017 to about 13x currently, as the coronavirus pandemic clouds the company’s outlook.

Why The Stock Price Could Move Up?

Corning’s stock has dropped this year largely due to pessimism surrounding its display business, while its fiber business shouldn’t see any significant impact. The telecom operators, such as Verizon and AT&T, have thus far continued to make investments to strengthen their 5G infrastructure. However, if the global spread of Covid-19 is not contained in the near term, the companies may decide to cut down on capex, which, in turn, will impact Corning’s business. Besides investment in 5G, the Covid-19 has resulted in limited site access, health and safety concerns, and supply chain interruptions impacting the company’s fiber business.

Beyond optical fiber, Corning’s display glass business could see larger headwinds in the near term, owing to the impact of Covid-19 on the economies across the globe. Fading consumer demand, reduced discretionary spending, and closed stores have resulted in lower television sales over the recent months, and this trend could continue in the near term, thus impacting the demand for Corning’s display glass. Even smartphones sales are expected to decline in 2020, again impacting the gorilla glass sales for Corning.

These are extraordinary times for businesses and the question really is, despite the expected headwinds, is Corning stock a good buy after such a decline? The 23% decline in the stock price since 2017 is largely driven by the P/E Multiple contraction from 19x to 13x, reflecting a strong 30% decline. The current multiple is much lower when compared to its historical levels, and these levels could potentially cause investors to re-examine the company’s valuation. As such, we believe that there is a large upside potential for Corning stock, particularly due to its fiber business, which will likely bolster the earnings in the near term with ramp up in 5G demand.

While we believe there is a good upside potential for the company from the current levels, we also consider an outlier scenario for Corning’s stock to fall below $17 levels, in the wake of the current pandemic.

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