Corning (NYSE: GLW) recently reported its Q3 results, with revenues and earnings falling below the street estimates. Although GLW stock is trading at 1.7x sales, lower than its last five-year average of 2.4x, a slight decline in valuation multiple is justified given the declining sales for Corning, a trend expected to continue in the near term.
Corning reported revenue of $3.2 billion, reflecting a 9% decline from the prior year period. Core sales stood at $3.5 billion, marginally short of the street expectations. Its adjusted earnings of $0.45 per share were also lower than the consensus estimate of $0.47 figure. In this note, we discuss Corning’s stock performance, key takeaways from its recent results, and valuation.
GLW stock has faced a notable decline of 30% from levels of $35 in early January 2021 to around $25 now, vs. an increase of about 10% for the S&P 500 over this roughly 3-year period. However, the decrease in GLW stock has been far from consistent. Returns for the stock were 3% in 2021, -14% in 2022, and -17% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 7% in 2023 (YTD) – indicating that GLW underperformed the S&P in 2021 and 2023.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Technology sector, including AAPL, MSFT, and NVDA, and even for the mega-cap stars GOOG, TSLA, and AMZN.
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In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could GLW face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a recovery? From a valuation perspective, GLW stock looks like it has room for growth. We estimate Corning’s Valuation to be $31 per share, reflecting around 17% upside from its current levels of $27. Our forecast is based on an 18x P/E multiple for GLW and expected earnings of $1.71 on a per-share and adjusted basis for the full year 2023. The company expects its adjusted earnings per share to be in the range of $1.70 and $1.75 for 2023. The 18x P/E multiple compares with the last four-year average of 19x. We have lowered the valuation multiple amid falling sales for Corning and a weak demand outlook for its business segments, including display and optical communication.
Corning’s revenue of $3.2 billion was down 9% y-o-y due to a 30% fall in optical communications sales amid fewer orders from mobile carriers. The company saw its profit margin contract 90 bps y-o-y to 7.5% in Q3. Lower revenues and margin contraction resulted in earnings of $0.45 on a per-share and adjusted basis, compared to $0.51 per share in the prior year period.
|S&P 500 Return||-4%||7%||84%|
|Trefis Reinforced Value Portfolio||-6%||16%||496%|
 Month-to-date and year-to-date as of 10/30/2023
 Cumulative total returns since the end of 2016