No Glass Ceiling For Corning

2/2/2015


  Recent Price
$24
  Dividend
$0.48
  Yield
2.0%
  P/E Ratio
16
  Shares (millions)
1,402
  Long-Term Debt as % of Capital
13%
  52-Week Price Range
$24.98 - $16.55

Television screens keep getting bigger as mobile devices become more and more prevalent. Both trends work in Corning's ($24; GLW) favor, as illustrated by the glass supplier's December-quarter results.

Corning reported earnings per share of $0.45 excluding special items, up 55% and exceeding the consensus by $0.07. Net revenue jumped 23% to $2.40 billion, below analyst expectations for $2.50 billion. However, at constant currency, revenue rose 30% to $2.60 billion. Robust retail demand for larger TVs helped glass volumes exceed Corning's expectations. Shares rallied on the results.

Corning, with an Overall Quadrix score of 96, is being upgraded to a Buy. It was already a Long-Term Buy.

Business breakdown

Per-share profits rose 24% in 2014, while cash from operations surged 69%. Strong cash-flow trends allowed Corning to announce a 20% dividend hike in December. At the end of the year, the company held $2.81 billion ($2 per share) in net cash, up 47% from a year earlier. Sales advanced 23% for the year on gains across all five of Corning's segments.

Corning's largest and most profitable segment, display technologies (40% of 2014 sales, 69% of net income), delivered 51% higher revenue. The retail TV market could get a lift as consumers upgrade to ultra-high-definition models. Corning expects sales of these new TVs to at least double to 25 million units this year.

Optical communications (27% of sales, 10% of net income) sells optic fiber and other cable products. Revenue grew 14% in 2014 and is projected to exceed 10% in the March quarter.

Specialty materials (12%, 7%) is best known for Gorilla Glass, thin but durable sheets used in tablets, smartphones, and notebook computers. In the December quarter, Corning launched its fourth iteration of Gorilla Glass, driving 12% growth in core sales. Corning expects sales to grow 10% in the March quarter.

The environmental-technologies unit (11%, 9%) makes ceramic substrates and filters that control engine emissions. Sales grew 19% in 2014, benefiting from strong demand for U.S. trucks and heavy-duty diesel products that conform to new regulations in Europe and China.

The life-sciences business (9%, 4%) makes beakers, bottles, and other types of laboratory equipment. Sales rose 1% for the year.

In January, Corning unveiled Iris, a new product that helps illuminate pixels along the edges of a TV. These components have traditionally been made of plastic, which requires additional parts to provide structural support. Corning says Iris is strong enough to eliminate the need for extra support, allowing manufacturers to produce thinner screens. According to one estimate, Iris could boost Corning's glass sales by 50% per TV.

Conclusion

At 16 times trailing earnings, Corning shares trade 25% below the median for S&P 1500 electronic-components stocks. The stock also trades well below industry norms relative to operating cash flow and free cash flow.

An annual report for Corning Inc. can be obtained at One Riverfront Plaza, Corning, NY 14831; (607) 974-9000; www.corning.com.

CORNING
 
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Dec '14
0.45
vs.
0.29
23%
23.52
-
17.03
17 - 12
Sep '14
0.40
vs.
0.33
23%
22.37
-
19.23
17 - 15
Jun '14
0.37
vs.
0.32
25%
22.20
-
20.17
18 - 16
Mar '14
0.31
vs.
0.29
26%
20.99
-
16.55
17 - 13
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Est.
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2014
9.72
1.53
0.40
23.52
-
16.55
15 - 11
2013
7.82
1.23
0.39
18.07
-
11.75
15 - 10
2012
8.01
1.06
0.32
14.62
-
10.62
14 - 10
2011
7.89
1.76
0.23
23.43
-
11.51
13 - 7
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
96
90
67
72
80
85
84

   * Earnings exclude special items.
   † Quadrixscores are percentile ranks, with 100 the best.


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