Should You Buy Corning Stock After Its Recent Rally?

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[Updated: Feb 3, 2022] GLW Stock Rise

The stock price of Corning (NYSE: GLW) has seen a large rise of 21% since its Q4 results announcement on Wednesday, Jan 26. Now, Corning’s Q4 earnings of $0.54 on a per share and adjusted basis, was better than the consensus estimate of $0.52, but slightly below our forecast of $0.56. Corning’s revenue of $3.7 billion was up 10% y-o-y, and marginally above our, as well as the consensus estimate, of $3.6 billion.

The segment-wise performance was in line with our expectations. Environmental Technologies sales were down 21% to $353 million, due to the impact of semiconductor chips shortage on the overall automotive industry. On the positive side, Optical Communications segment revenue was up a solid 24% to $1.2 billion, driven by continued demand for 5G and cloud computing. Display Technologies saw its sales expand by 12% on the back of a strong glass pricing environment. These trends are likely to continue in 2022, as well.

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However, both gross margin (down 160 bps), as well as operating margin (down 110 bps), were lower for Corning in Q4. While the inflationary headwinds have impacted the overall margins in Q4, the company has undertaken price increases and its impact should be visible on gross margins starting in Q1 2022 and expanding for the rest of the year, according to the company’s management. A robust demand outlook for its products clubbed with an expected rise in margins boded well with the investors, evident from its stock price appreciation.

We have revised our model to reflect the latest quarterly results, and we now estimate Corning’s Valuation to be around $51 per share (vs. $47 earlier), which is 19% above its current market price of $43. This represents a P/E multiple of around 21x based on our $2.40 EPS forecast for 2022. This compares with the $2.07 EPS seen in 2021 and $1.39 in 2020. The valuation multiple of 21x is higher than the comparable average of 18x for the last three years. We believe that a higher multiple is justified for GLW stock, given the strong earnings growth seen in the recent past, a trend likely to continue going forward, as well.

Now, what about the near term?

After its recent rally, GLW stock is now sitting on 15% gains in a month. Will it continue its upward trajectory, or is a fall imminent? Going by historical performance, there is a higher chance of a rise in GLW stock over the next monthOut of 89 instances in the last ten years that GLW stock saw a twenty-one-day rise of 15% or more, 51 of them resulted in GLW stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 51 out of 89, or about a 57% chance of a rise in GLW stock over the coming month, implying that GLW stock is a good bet at its current levels, in our view. See our analysis on Corning Stock Chance of A Rise for more details.

[Updated: Jan 25, 2022] Corning Q4 Earnings Preview

Corning (NYSE: GLW) is scheduled to report its Q4 2021 results on Wednesday, January 26. We expect Corning to likely post revenue in-line and earnings above the street expectations. The revenues are expected to trend higher, aided by 5G expansion, cloud computing, as well as higher demand for its display glass products. However, the ongoing semiconductor chip shortage likely weighed on the company’s automotive business.

The company has been able to grow its margins over the recent quarters, a trend expected to continue going forward. Furthermore, our forecast indicates that Corning’s valuation is around $47 per share, which is 34% above the current market price of $35. Our interactive dashboard analysis of Corning’s Pre-Earnings has additional details.

(1) Revenues expected to be in line with the consensus estimates

  • Trefis estimates Corning’s Q4 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 continue to expand their 5G coverage.
  • The company’s display glass products business is expected to benefit from better price realization. The company expects a tighter glass supply and an increase in glass prices in the near term.
  • However, looking at environmental technologies, the sales may decline due to the impact of semiconductor chips shortage on the overall automotive industry. Note that Corning has seen strong sales for its gasoline particulate filters, given the increased adoption of the emission regulations in Europe and China. But the chip shortage issue is likely going to weigh on the overall segment performance.
  • Looking back at Q3 2021, Corning’s revenues grew a solid 20% y-o-y to $3.6 billion, led by a 15% growth in specialty materials, which includes Gorilla Glass, with continued high demand for premium glass.
  • Our dashboard on Corning’s Revenues offers more details on the company’s segments.

2) EPS likely to be above the consensus estimates

  • Corning’s Q4 2021 earnings per share (EPS) is expected to be $0.56 per Trefis analysis, above the consensus estimate of $0.52.
  • Corning’s adjusted net income of $485 million in Q3 2021 reflected a 28% rise from its $380 million figure in the prior-year quarter. This can be attributed to higher revenues and a 60 bps improvement in net margins.
  • We expect the margins to improve in Q4 as well, 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 2022, we expect the adjusted EPS to be higher at $2.40, compared to $1.38 in 2020, and an estimated $2.10 in 2021.

(3) Stock price estimate much higher than the current market price

  • Our Corning’s Valuation of $47 reflects a large 34% upside potential from its current levels of $35.
  • This represents a P/E multiple of under 20x based on Corning’s expected EPS of $2.40 in 2022.
  • If Corning’s results are above the street estimates, as we anticipate, it may result in a rise in its stock price in the near term, and given that the stock appears to be undervalued at its current levels, in our view, investors may be better off buying the GLW stock now.
  • That said, there are near-term macro risks. With the U.S. Federal Reserve monetary policy-setting meeting coming up on January 26, there are rising concerns of tighter financial conditions that may weigh on the overall markets at large.

Although GLW stock may trade higher in the near term, it is helpful to see how its peers stack up. Check out how Corning’s Peers fare on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Feb 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 GLW Return 2% 15% 76%
 S&P 500 Return 2% -4% 105%
 Trefis MS Portfolio Return 1% -9% 260%

[1] Month-to-date and year-to-date as of 2/3/2022
[2] Cumulative total returns since the end of 2016

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