Here’s A Better Pick Over Corning Stock

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We believe that Thermo Fisher Scientific (NYSE: TMO) currently is an attractive pick over Corning stock (NYSE: GLW), despite TMO’s comparatively higher valuation. TMO stock trades at 5.2x trailing revenues, compared to 2.2x for GLW stock. We believe that this valuation gap is justified to some extent, given Thermo Fisher Scientific’s superior revenue growth and better profitability. While both companies have seen a substantial rise in revenues since the lockdowns started being lifted, Corning has fared better over the recent quarter, led by strong demand for 5G and cloud computing.

Looking at stock returns, GLW, with -4% returns over the last six months, has outperformed TMO, which is down 8%. This compares with a 7% fall in the broader S&P500 index. However, there is more to the comparison, and we believe Thermo Fisher Scientific stands out with higher expected returns than Corning, as discussed in the sections below.  We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis – Corning vs. Thermo Fisher ScientificWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Thermo Fisher Scientific’s Revenue Growth Over The Recent Years Has Been Stronger

  • Both companies managed to see sales growth over the recent quarters. Still, Corning has witnessed comparatively faster revenue growth of 25% over the last twelve months, compared to 22% for Thermo Fisher Scientific.
  • Looking at a longer time frame, Corning’s sales grew at a CAGR of 8.2% to $14.1 billion over the last twelve-month period, compared to $11.3 billion in 2018, while Thermo Fisher Scientific’s sales rose at a CAGR of 17.6% to $39.2 billion from $24.4 billion over the same period.
  • For Corning, the revenue growth was partly driven by increased demand for gasoline particulate filters, given the increased adoption of the emission regulations in Europe and China. However, more recently, automotive sales have been trending lower due to the semiconductor chip shortage issue weighing on the overall automotive production. Corning has seen steady growth for its glass-related businesses due to a robust pricing environment. The expansion of 5G and cloud computing has also buoyed the company’s overall sales, a trend expected to continue going forward.
  • Thermo Fisher Scientific manufactures analytical laboratory instruments used in various tests, and the pandemic has led to a surge in demand for these instruments. Its sales growth is buoyed by continued market share gains for its instruments. Note that once the devices are installed, it generates recurring revenue in the form of after-sales service, resulting in demand for consumables.
  • Our Corning Revenue and Thermo Fisher Scientific Revenue dashboards provide more details on the companies’ revenues.
  • The table below summarizes our revenue expectation for both the companies over the next three years and points to a CAGR of 6.6% for Corning, compared to a CAGR of 10.7% for Thermo Fisher Scientific.
  • Note that we have different methodologies for companies negatively impacted by Covid and for companies not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to predict recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. Thermo Fisher Scientific Is More Profitable

  • Thermo Fisher Scientific’s operating margin of 22% over the last twelve-month period is better than 20% for Corning.
  • This compares with 21% and 14% figures seen in 2019, before the pandemic, respectively.
  • Looking at the recent margin growth, Corning is better, with the last twelve months vs. last three-year margin change at 4.5%, compared to -2.3% for Thermo Fisher Scientific.
  • Our Corning Operating Income and Thermo Fisher Scientific Income dashboards have more details.
  • Looking at financial risk, both companies are comparable. Corning’s 23% debt as a percentage of equity is higher than 17% for Thermo Fisher Scientific. In comparison, its 7% cash as a percentage of assets is higher than 5% for the latter, implying that Corning has a better cash cushion. In contrast, Thermo Fisher Scientific has a better debt position.

3. The Net of It All

  • We see that the revenue growth and profitability have been better for Thermo Fisher Scientific. However, Corning is trading at a comparatively lower valuation.
  • We believe Thermo Fisher Scientific is currently the better choice of the two, looking at prospects, using P/S as a base due to high fluctuations in P/E and P/EBIT.
  • The table below summarizes our revenue and return expectation for GLW and TMO over the next three years and points to an expected return of 19% for GLW over this period vs. 28% expected return for TMO stock, implying that both are good bets, but if one has to choose between the two, buying TMO over GLW is likely to garner higher returns, based on Trefis Machine Learning analysis – Corning vs. Thermo Fisher Scientific – which also provides more details on how we arrive at these numbers.

While GLW stock may see higher levels, the Covid crisis 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 Corning vs. LGI Homes.

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 Mar 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
GLW Return -8% -1% 52%
TMO Return -4% -21% 271%
S&P 500 Return -5% -12% 86%
Trefis MS Portfolio Return -5% -15% 235%

[1] Month-to-date and year-to-date as of 3/9/2022
[2] Cumulative total returns since the end of 2016

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