These Stocks Can Offer Better Returns Over Corning

We believe that there are several stocks in the industrial sector that are currently better than Corning (NYSE: GLW), best known for its display panels and gorilla glass. Corning’s current market cap-to-operating income ratio of 34x is much higher than 11x for Energizer (ENR), 13x for Brunswick (BC), and 15x for BWX Technologies (BWXT).

Does this gap in valuation between Corning and its peers make sense? We don’t think so, especially if we look at the fundamentals of these companies. More specifically, we arrive at our conclusion by looking at historical trends in revenues, operating income, and market cap-to-operating income ratio for these companies. Our dashboard Better Bet Than GLW Stock: Pay Less To Get More From ENR, BC, BWXT has more details – parts of which are summarized below.

1. Revenue Growth

Corning’s revenue grew at an average rate of 4% over the last three years, as compared to revenue growth of 17% for Energizer, 5% growth for Brunswick, and 8% growth for BWX. Even if we look at the revenue growth over the last twelve month period, Corning’s revenue decline of 2% is much worse than growth of 10%, 6%, and 12% for Energizer, Brunswick and BWX, respectively.

• Corning’s business has been impacted by the Covid-19 pandemic in 2020, due to a decline in capital spending from some of its customers as well as pricing pressure for its display glass products. Though closed office spaces meant an increase in demand for laptops, boding well for Corning’s premium glass business. Now that multiple countries have initiated vaccination programs, the capital spending for some of Corning’s customers is expected to rise, especially related to 5G expansion, boding well for Corning stock in the near term.
• Energizer is the largest manufacturer of batteries in the world, and it has seen its revenue grow in double-digits over the recent years due to acquisition of global battery, lighting and portable power business of Spectrum Brands Holdings, Inc. The company last month reported its Q1 results, with double-digit revenue growth across the segments, led by improved demand conditions, especially for the Auto Care segment. Looking forward, the company expects to improve its margins, which will be favorable for its stock.
• Brunswick, best known for its boats, marine engines, and other associated accessories, has seen a 6% revenue growth in 2020, led by an increased boating demand as well as service backlogs. Much of the growth over the recent past has been led by the company’s Propulsion business. The company expects top-line expansion as well as operating margin growth going forward, implying better earnings growth. This should be positive for BC stock going forward.
• BWX Technologies, a nuclear components and fuel supplier to the U.S., has seen its top-line expand 12% in 2020, led by higher fuel as well as downblending volume, along with the impact of Laker Energy acquisition. The company expects steady top-line growth going forward, primarily led by its Nuclear Operations Group, which is focused on manufacturing naval nuclear reactors.

2. Operating Income Growth

The three-year average operating income growth for Corning stands at -18%, much lower than -6% for Energizer, 65% for Brunswick, and 8% for BWX. Better revenue growth for the latter three along with margin expansion has led to higher operating income for these companies. Looking at the last twelve month period, Corning’s 40% drop in operating income compares with -12%, 193%, and 8% change for Energizer, Brunswick and BWX, respectively.

The Net of It All

Although Corning’s revenue base is much larger than Energizer, Brunswick, and BWX, each of these companies has seen higher growth in revenues and operating income than Corning in the last twelve months as well as the last three years.  Yet, they appear to be significantly cheaper than Corning. Despite better profit and revenue growth, these companies have a comparatively lower market cap-to-operating income ratio.

Corning’s persistent underperformance in revenue and operating income growth reinforces our conclusion that the stock is expensive compared to its peers, and we think this gap in valuation will eventually narrow over time to favor the group of comparatively less expensive names. As such, we believe that Energizer, Brunswick, and BWX are currently better buying opportunities compared to Corning.

While GLW stock looks comparatively expensive, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Badger Meters vs. BWX Technologies.

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