Which Stocks Can Offer Better Returns Compared To Corning?

by Trefis Team
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We believe that there are other stocks in the electrical equipment industry that are currently better valued than Corning (NYSE: GLW). Corning’s current price-to-operating income ratio (P/EBIT) of 38x is much higher than levels of 22x for EnerSys (ENS), 14x for BWX Technologies (BWXT), and 11x for Energizer (ENR). These stocks have a lower valuation (P/EBIT) compared to Corning, while all of them have seen better revenue and operating income growth. This disconnect between valuation and performance could mean that you are better off buying ENS, BWXT, and ENR vs. GLW stock. More specifically, we arrive at our conclusion by looking at historical trends in revenues, operating income, and P/EBIT for these companies. Our dashboard – Better Bet Than Corning Stock: Pay Less To Get More From Sector Peers ENS, BWXT, ENR – has more details – parts of which are summarized below.

1. Revenue Growth

Corning’s revenue grew at an average rate of 3.9% over the last three years, as compared to average revenue growth of 9.3% for EnerSys, 8.0% for BWX Technologies, and 17% for Energizer. If we look at the revenue growth over the last twelve month period, Corning’s revenue decline of 1.7% compares favorably with a 5% decline for EnerSys, but it is much lower compared to average growth of 12% and 110% for BWX Technologies and Energizer, respectively.

  • Corning’s revenue decline over the recent past can be attributed to the impact of Covid-19, which resulted in lower capital spending from some of its customers as well as pricing pressure for its display glass products. On the positive side, closed office spaces meant an increase in demand for laptops, boding well for Corning’s premium glass business. Looking forward, now that multiple countries have undertaken large-scale vaccination programs, the capital spending for some of Corning’s customers is expected to rise, especially related to 5G expansion, indicating well for Corning’s revenue growth.
  • EnerSys, best known for its UPS (uninterrupted power supply for computers and other uses), whose revenue growth over the recent years has been led by Alpha and Northstar acquisitions, which resulted in higher Energy Systems segment (UPS business) revenues. However, the Covid-19 led economic slowdown over the recent quarters weighed on the Motive Power segment (primarily involves power for electric industrial forklifts used in manufacturing) sales. Looking forward, EnerSys’ revenues are expected to rise as the Covid-19 crisis winds down, especially on the industrial side.
  • 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. The company’s Laker Energy acquisition also bolstered the overall revenue growth. The company expects steady top-line growth going forward, primarily led by its Nuclear Operations Group, which is focused on manufacturing naval nuclear reactors.
  • Energizer, the largest manufacturer of batteries in the world, 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. Of late, with economies opening up gradually, Energizer is seeing improved demand conditions, especially for the Auto Care segment.

2. Operating Income Growth

The three-year average operating income growth for Corning stands at -18%, much lower than -6% for EnerSys and Energizer, and an 8% growth for BWX Technologies. Better revenue growth for the latter three has led to higher operating income, partly being offset by a decline in margins for ENS and ENR. Looking at the last twelve month period, Corning’s 40% drop in operating income compares with -9.9%, 8.1%, and -14.0% change for EnerSys, BWX Technologies, and Energizer, respectively. This can be attributed to an increase in operating costs during the pandemic.

The Net of It All

Although Corning’s revenue base is much larger than EnerSys, BWX Technologies, and Energizer, each of these companies has seen higher growth in revenues and operating income than Corning over the last twelve months as well as the last three year period.  Yet, they appear to be significantly cheaper than Corning. Despite better profit and revenue growth, these companies have a comparatively lower P/EBIT. Even if we were to look at the last twelve months revenue and operating income growth a year ago, EnerSys, BWX Technologies, and Energizer fare better compared to Corning, and even then Corning was trading at a higher multiple.

Corning’s persistent underperformance in revenue and operating income growth compared to the other three companies 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 more attractively priced names. As such, we believe that EnerSys, BWX Technologies, and Energizer are currently better buying opportunities compared to Corning.

While ENS, BWXT, and ENR stocks may outperform GLW in the near term, 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 Cirrus Logic vs. Northrop Grumman.

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