This Company Is A Better Pick Over Corning Stock

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We believe that Thermo Fisher Scientific (NYSE: TMO) is currently a better pick over Corning stock (NYSE: GLW), despite trading at a comparatively higher valuation of 5.2x trailing revenues vs. 2.0x for Corning. This valuation gap can be attributed to Thermo Fisher Scientific’s superior revenue growth over recent years and better profitability.

Looking at stock returns, GLW, with -7% returns so far this year, has fared slightly better than TMO stock, which is down 16%, and the broader S&P500 index, down 15% over this period. There is more to the comparison, and in the sections below, we discuss why we believe TMO stock will offer better returns than GLW stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis of Corning vs. Thermo Fisher ScientificWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

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

  • Both companies managed to see sales growth over the recent quarters. Still, Corning has witnessed comparatively faster revenue growth of 18.6% over the last twelve months, compared to 11.9% for Thermo Fisher Scientific.
  • Looking at a longer time frame, Corning’s sales grew at an average annual growth rate of 8.2% to $14.1 billion in 2021, compared to $11.3 billion in 2018, while Thermo Fisher Scientific’s sales rose at an average annual growth rate 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 overall automotive production.
  • Over the recent quarters, Corning has benefited from a pickup in demand for optical fiber as carriers continue to expand their 5G coverage, a trend expected to continue going forward.
  • Thermo Fisher Scientific manufactures analytical laboratory instruments used in various tests, and the pandemic has increased demand for these instruments. Its sales growth is buoyed by continued market share gains for its instruments.
  • Thermo Fisher Scientific has seen a solid 18.8% growth in the first half of 2022, primarily driven by its Laboratory Products & Biopharma Services segment, which saw a substantial 53% y-o-y growth. This can be attributed to its December 2021 acquisition of PPD Inc. – a clinical research services provider to the biopharma and biotech industry – for $17.4 billion. The PPD business contributed $3.4 billion in revenue in the first half of 2022.
  • 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 companies over the next three years and points to a CAGR of 5.9% for Corning, compared to a CAGR of 10.3% for Thermo Fisher Scientific.
  • Note that we have different methodologies for companies negatively impacted by Covid and those 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 three years before Covid to simulate a 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 23.8% over the last twelve-month period is better than 18.7% for Corning.
  • This compares with 20.6% and 15.6% figures seen in 2019, before the pandemic, respectively.
  • Corning’s 22.3% free cash flow margin is better than 20.6% for Thermo Fisher Scientific.
  • Our Corning Operating Income and Thermo Fisher Scientific Income dashboards have more details.
  • Looking at financial risk, Corning’s 24.1% debt as a percentage of equity is higher than 13.9% for Thermo Fisher Scientific, while its 6.7% cash as a percentage of assets is higher than 2.1% for the latter, implying that Thermo Fisher Scientific has better debt position and Corning has more cash cushion.

3. The Net of It All

  • We see that the revenue growth, profitability, and debt position are better for Thermo Fisher Scientific. On the other hand, Corning has more cash cushion and is trading at a comparatively lower valuation.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Thermo Fisher Scientific is currently the better choice of the two, despite its higher valuation.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 32% for Thermo Fisher Scientific over this period vs. a 22% expected return for Corning stock, implying that investors are better off buying TMO over GLW, based on Trefis Machine Learning analysis – Corning vs. Thermo Fisher Scientific – which also provides more details on how we arrive at these numbers.

While TMO stock may outperform GLW, it is helpful to see how Corning’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 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 Allegion vs. Installed Building Products.

With inflation rising and the Fed raising interest rates, among other factors, GLW stock has seen a fall of 7% this year. Can it drop more? See how low Corning stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Aug 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
GLW Return -6% -7% 43%
TMO Return -6% -16% 300%
S&P 500 Return -2% -15% 81%
Trefis Multi-Strategy Portfolio -2% -15% 239%

[1] Month-to-date and year-to-date as of 8/29/2022
[2] Cumulative total returns since the end of 2016

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