Corning (NYSE:GLW) is scheduled to report its Q3 2021 results on Tuesday, October 26. 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 continued demand for gasoline particulate filters, as well as optical fiber to support 5G expansion for large carriers. The company has been able to grow its margins over the recent quarters. While supply chain disruptions and inflationary pressure can impact the overall margin growth, the company is likely to pass on increased costs to customers. Furthermore, our forecast indicates that Corning’s valuation is around $49 per share, which is 29% above the current market price of $38. Our interactive dashboard analysis on Corning’s Pre-Earnings has additional details.
(1) Revenues expected to be largely in-line with the consensus estimates
Trefis estimates Corning’s Q3 2021 revenues to be around $3.6 billion, in-line with the consensus estimate. Corning is likely to see a pickup in demand for optical fiber as carriers expand their 5G coverage. For instance, Verizon recently stated that it will stick to its CapEx plans for 2021, despite the current supply chain constraints. Also, revenue growth will likely be bolstered by high demand for its gasoline particulate filters, given the increased adoption of the emission regulations in Europe and China. Looking back at Q2 2021, Corning’s revenues grew a solid 35% y-o-y to $3.5 billion, 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 in-line with the consensus estimates
Corning’s Q3 2021 earnings per share (EPS) is expected to be $0.59 per Trefis analysis, largely in-line with the consensus estimate of $0.58. Corning’s adjusted net income of $459 million in Q2 2021 reflected more than a 2x rise from its $218 million figure in the prior-year quarter. This can be attributed to higher revenues, 200 bps improvement in gross margins, and 120 bps growth in operating margin. 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 $2.16 compared to $1.38 in 2020.
(3) Stock price estimate 29% above the current market price
Going by our Corning’s Valuation, with an adjusted EPS estimate of around $2.16 and a P/E multiple of around 23x in 2021, this translates into a price of $49, which is 29% above the current market price. At the current price of $38, GLW is trading at under 18x its expected 2021 EPS of $2.16, compared to 26x levels seen in 2020 and around 17x prior to 2020. We believe that the multiple will likely expand for Corning, given the strong demand outlook, margin expansion, and share repurchases – all pointing toward 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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