Does Corning Stock Have More Upside?

[Updated: 7/30/2021] Corning Stock Update

Corning (NYSE: GLW) recently reported its Q2 results, which were largely in-line with the Trefis estimates. The company reported sales of $3.5 billion, up 37% y-o-y, and it was slightly higher than our and consensus forecast of $3.4 billion. While the sales growth was visible across all the segments, the automotive business saw a solid 68% jump in sales y-o-y, led by increased adoption of gas particulate filter in Europe and China, a trend expected to continue in the near term.

Looking at the bottom-line, the company reported adjusted earnings of $0.53 per share, up over 2x y-o-y, driven by both an increase in revenue as well as margin expansion. The earnings were in-line with our forecast, and slightly higher than the $0.51 consensus estimate. The company managed to leverage sales growth, along with lower R&D costs, that led to margin expansion. That said, the margins are likely to see some pressure in Q3, given an increase in raw material prices.

We have updated our model following the Q2 release. We maintain our sales forecast to be $13.7 billion for the full-year 2021, up 21% y-o-y, and adjusted EPS to be $2.12, just a little higher compared to the $2.10 consensus estimate. Given that there has been no change in our revenues and earnings forecast, we are maintaining our Corning Valuation at under $50 per share, based on $2.12 expected EPS and a little over 23x P/E multiple for 2021. However, despite no change to our estimate, we see there is more than 15% upside in GLW stock from the current levels of under $42.

[Updated: 7/23/2021] Corning Q2 Earnings Preview

Corning stock (NYSE: GLW) is scheduled to report its Q2 2021 results on Tuesday, July 27. We expect Corning to likely post revenue and earnings largely in-line with 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 repurchased 4% of outstanding shares from Samsung Display. Samsung Display will continue to hold the rest of its 9% stake for the long-term in Corning. This transaction will bolster the bottom-line growth for the company in Q2. We expect the company to navigate well through the quarter based on these trends.

Furthermore, our forecast indicates that Corning’s valuation is around $50 per share, which is 25% above the current market price of $40. Our interactive dashboard analysis on Corning’s Pre-Earnings has additional details.

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

Trefis estimates Corning’s Q2 2021 revenues to be around $3.4 Bil, in-line with the consensus estimate. Corning in Q2 2020 saw a 13% decline in revenue, primarily due to capital spending reductions for some of its customers, amid the pandemic. Now that nearly half of the U.S. population is fully vaccinated, and on the international front, most of the countries have undertaken large-scale vaccination programs, the economic growth has picked up pace. While the U.S. GDP grew 6.4% in Q1 2021, it is estimated to have grown 8.8% in Q2. This should bode well for Corning’s sales in Q2. The company will likely see increased demand for optical fiber amid 5G expansion. Looking back at Q1 2021, Corning’s revenues grew a solid 38% y-o-y to $3.3 Bil, with growth seen across all of the company’s segments. Our dashboard on Corning’s Revenues offers more details on the company’s segments.

2) EPS likely to be slightly above the consensus estimates

Corning’s Q2 2021 earnings per share (EPS) is expected to be $0.53 per Trefis analysis, slightly above the consensus estimate of $0.51. Corning’s adjusted net income of $402 million in Q1 2021 reflected a large 127% rise from its $177 million figure in the prior-year quarter. This can be attributed to higher revenues, and margin expansion, partly due by lower R&D expenses. The margins are expected to improve going forward, led by a continued strong pricing environment. While inflation has impacted the raw material costs for several companies, Corning will likely be able to pass on the incremental costs to the customers, given the strong demand outlook. As such, for the full-year 2021, we expect the adjusted EPS to be higher at $2.12 compared to $1.38 in 2020.

(3) Stock price estimate 25% above the current market price

Going by our Corning’s Valuation, with an adjusted EPS estimate of around $2.12 and a P/E multiple of around 24x in 2021, this translates into a price of $50, which is 25% above the current market price. At the current price of $40, GLW is trading at under 19x its expected 2021 EPS of $2.12, compared to the comparable P/E levels 20x and below seen over the recent years. We believe that the multiple will likely expand for Corning, given the strong demand outlook, margin expansion, and share repurchases – all pointing towards stronger earnings growth going forward.

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 rise 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 Canadian Pacific Railway vs. D R Horton.

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