We believe that Corning stock (NYSE: GLW) is currently a better pick West Pharmaceutical Services stock (NYSE: WST), a global solutions provider for drugs, biologics, gene therapies, and consumer healthcare products. Although these companies are from different sectors, we compare them because they have a similar market capitalization of around $30 billion.
Interestingly, GLW has had a Sharpe Ratio of 0.2 since early 2017, lower than the 0.9 figure for WST and 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. Since these stocks are from different sectors, comparing P/S against one another may not be helpful. We compare their current multiples with the historical ones in the sections below to better gauge their valuations.
Looking at stock returns, WST has outperformed GLW and the broader markets amid the upbeat performance of its proprietary products business. While GLW is down 1% this year, the S&P500 index is up 16%, and WST is up a stellar 68%. There is more to the comparison, and in the sections below, we discuss why we believe that GLW will offer better returns over WST in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Corning vs. West Pharmaceutical Services: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
1. West Pharmaceutical Services’ Revenue Growth Is Better
- Corning’s revenue growth has been slower compared to West Pharmaceutical Services. Corning’s sales rose at an average annual growth rate of 7.9% to $14.2 billion in 2022, compared to $11.5 billion in 2019, while the latter’s sales grew at an average annual rate of 16.8% to $2.9 billion in 2022 from $1.8 billion in 2019.
- Corning’s revenue growth over the recent years was partly driven by increased demand for gasoline particulate filters, given the increased adoption of the emission regulations in Europe and China.
- Corning has benefited from a pickup in demand for optical fiber as carriers continue to expand their 5G coverage. However, its display technologies sales have trended lower due to a decline in volume and lower demand in the smartphone, tablet, and notebook markets, which have weighed on the specialty materials business.
- Furthermore, supply chain constraints and the impact of China lockdowns have weighed on its top-line growth in the recent past.
- West Pharmaceuticals Services saw its sales expand for its proprietary products, including Westar and NovaPure, along with solid demand for its products related to the Covid-19 vaccine and treatments.
- Although the demand for Covid-19-related products has been on a decline, its proprietary products sales haven’t declined meaningfully in recent quarters, led by price increases and higher sales of non-Covid-related products.
- Our Corning Revenue Comparison and West Pharmaceutical Services Revenue Comparison 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 4.6% for Corning, compared to a CAGR of 5.6% for West Pharmaceutical Services.
- 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.
2. WST Is More Profitable
- Corning’s operating margin has declined from 15.6% in 2019 to 14.7% in 2022, while West Pharmaceutical Services’ operating margin rose from 16.1% to 25.4% over this period.
- Looking at the last twelve-month period, the latter’s operating margin of 22.8% fares better than 8.2% for Corning.
- Our Corning Operating Income Comparison and West Pharmaceuticals Services Operating Income Comparison dashboards have more details.
- Looking at financial risk, WST fares much better. Its 1% debt as a percentage of equity is much lower than 28% for Corning. Also, its 22% cash as a percentage of assets fares better than 5% for Corning, implying that West Pharmaceutical Services has a better debt position and more cash cushion.
3. The Net of It All
- We see that WST has seen better revenue growth, is more profitable, and has a better financial position.
- However, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Corning is currently the better choice of the two, given its better valuation.
- If we compare the current valuation multiples to the historical averages, GLW fares better, with its stock currently trading at 2.0x revenues vs. the last five-year average of 2.4x. In contrast, WST stock trades at 10.2x trailing revenues vs. the last five-year average of 8.9x.
- Our Corning (GLW) Valuation Ratios Comparison and West Pharmaceutical Services (WST) Valuation Ratios Comparison have more details.
- The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 15% for GLW over this period vs. a 3% expected return for WST stock, based on Trefis Machine Learning analysis – Corning vs. West Pharmaceuticals Services – which also provides more details on how we arrive at these numbers.
|S&P 500 Return||-1%||16%||99%|
|Trefis Reinforced Value Portfolio||-3%||27%||555%|
 Month-to-date and year-to-date as of 9/19/2023
 Cumulative total returns since the end of 2016