Should You Use The Recent Dip To Enter Into Corning Stock?

by Trefis Team
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[Updated: 5/14/2021] Corning Update

The stock price of Corning (NYSE:GLW) has corrected 4.8% over the last five trading sessions, and the dip appears to be a good buying opportunity in our view. Not only did the company post an upbeat performance in Q1, it has seen multiple positive developments of late. Earlier this week, Apple Inc. (NASDAQ:AAPL) announced a $45 million investment in Corning to enhance the company’s manufacturing capacity in the U.S. Corning provides the glass used in iPhone and Apple Watch, and this is not the first time Apple has invested in Corning. Apple’s Advanced Manufacturing Fund has awarded Corning $450 million over the past four years.

Other than mobile glass, Corning has been innovating its display technologies business, and earlier this week it announced the opening of a new Gen 10.5 liquid crystal display (LCD) glass substrate manufacturing facility in Wuhan, China. This new facility is aimed at high-volume production, and it will allow Corning to deliver Gen 10.5 glass substrates, measuring as much as 3 meters wide by 3 meters high, that can be used to produce large-size display panels.

Now that over 46% of the U.S. population has received at least one shot of the Covid-19 vaccine, it is expected that the U.S. economic growth will pick up pace. This will result in increased demand for the company’s other businesses, such as optical fiber. Corning is also making the glass vials for Covid-19 vaccines, and it has doubled its vial production in Q1 2021 over Q4 2020. The company has already delivered Valor Glass vials for millions of Covid-19 vaccine doses, and it also expanded its contract with the federal government.

Overall, Apple’s continued commitment in Corning, the company’s new facility at Wuhan, a very high demand for vaccine vials, and gradual opening up of the global economies, these all point toward strong growth for Corning’s business going forward. So, why did the stock decline over the last five trading sessions? Well, it can largely be attributed to a broader sell-off in the market, owing to higher inflation numbers in the U.S. The U.S. consumer prices jumped sharply due to a surge in demand, as the economy reopened. That said, going by the factors discussed above, and based on our machine learning analysis of trends in the stock price over the last few years, we believe that there is a higher chance of a rise in GLW stock over the next month (twenty-one trading days).

Out of 275 instances in the last ten years that Corning stock saw a five-day decline of 4% or more, 159 of them resulted in GLW stock rising over the subsequent one month period (21 trading days). This historical pattern reflects 159 out of 275, or about a 58% chance of gain in GLW stock over the coming month. See our analysis on Corning Stock Chances of Rise for more details.

[Updated: 4/23/2021] Corning Q1 Earnings Preview

Corning stock (NYSE: GLW) is scheduled to report its Q1 2021 results on Tuesday, April 27. We expect Corning to likely post revenue and earnings slightly below the street expectations. The revenues are expected to trend higher led by improved demand for its optical fiber as well as premium glass business. The company expects glass supply to remain stressed, translating into a better pricing environment for Corning. We expect the company to navigate well through the quarter based on these trends.

However, much of the positives appear to be priced in the current value of GLW stock. Our forecast indicates that Corning’s valuation is around $46 per share, which is in-line with the current market price. Our interactive dashboard analysis on Corning’s Pre-Earnings has additional details.

(1) Revenues expected to be slightly below the consensus estimates

Trefis estimates Corning’s Q1 2021 revenues to be around $3.10 Bil, slightly below the $3.13 Bil consensus estimate. The gradual opening up of economies and vaccination programs in the U.S. has resulted in a pickup in economic activities, and this should bode well for Corning’s businesses. The company will likely see increased demand for optical fiber amid 5G expansion. The company is also expected to see market share gains in Europe and China, especially for its gasoline particulate filters. Despite a challenging year, the company managed to grow its gasoline particulate filter sales in 2020, as Europe and China focus on new emission regulations. Looking back at Q4 2020, Corning’s revenues grew 17% y-o-y and 11% sequentially to $3.3 Bil, with this led by strong growth for specialty materials and environmental technologies businesses, a trend expected to continue in the near term as well. Our dashboard on Corning’s Revenues offers more details on the company’s segments.

2) EPS also likely to be below the consensus estimates

Corning’s Q1 2021 earnings per share (EPS) is expected to be $0.42 per Trefis analysis, slightly below the consensus estimate of $0.43. Corning’s adjusted net income of $462 million in Q4 2020 reflected a 14% rise from its $406 million figure in the prior-year quarter. This can be attributed to higher revenues, a modest decline in net margins, and a modest rise in total shares outstanding. That said, the margins are improving going forward, led by a continued strong pricing environment. For the full-year 2021, we expect the EPS to be $2.00 compared to $1.38 in 2020.

(3) All positives priced in the current stock value of $46 per share

Going by our Corning’s Valuation, with an adjusted EPS estimate of around $2.00 and a P/E multiple of around 23x in 2021, this translates into a price of $46, which is in-line with the current market price. The company’s P/E multiple (based on adjusted earnings) has already expanded from around 16x in 2018 and 2019 to 23x currently, and we don’t expect any meaningful growth in the multiple in the near term.

To sum it up, although the pandemic weighed on some of Corning’s businesses in 2020, we believe that a rebound seen in demand over the recent quarters will likely continue in 2021, bolstering the company’s top-line growth, while better pricing will translate into margin expansion. That said, we don’t see any meaningful appreciation in GLW stock in the near term, given its strong 2.5x rally over the last one year or so.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year

While GLW stock may be fully valued, 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 Canadian Pacific Railway vs. D R Horton.

See all Trefis Price Estimates and Download Trefis Data here

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