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Federico Flom
Federico Flom
Articles (110) 

Corning (GLW) - Growth at Attractive Prices (GARP)

November 15, 2011 | About:

Corning Incorporate is a manufacturer of substrates and glass products for the technology industry, particularly for LCD.

It has become my focus of attention because share prices have dropped lately, turning it into a good investment choice. To give you a succinct idea, shares are trading at $15 while its P/E is 7 and it has a net cash position of $4.1 billion.

There are a few risks worth considering before moving forward. In the third quarter, regardless of a strong performance in the retail market, utilization rates dropped, especially in Korea. Demand increased but production rates could not keep the former's pace, leading to a contraction in the supply chain inventory in said quarter.

Although growth can be foreseen in the fourth quarter in Korea, it seems other markets will remain dormant. Additionally, the volume of gas dropped by 20% at Samsung Corning Precision and market share was lost.

There's even more. Royalty income for 2012 and top consumers contribution to revenue. The former refers to the agreement between Corning and Samsung Corning Precision which is expiring by year-end, thus making the company management think that the rate will have to be decreased by over 50%. As regards the latter, it has been noticed that top consumers have made important contributions to revenue during the third quarter, thus impacting price. Accordingly, Corning will be cutting prices. Year over year, glass prices have declined 15% and the trend for 2012 is likely to continue.

Should I still give Corning a chance? Absolutely. Some third quarter results have been good. The firm is on track and is expected to meet its full year revenue and earnings expectations of $7.9 billion and $1.79 per share.

Despite drops in inventory and the loss in the share market, there has been sequential growth in revenue and the margin of income has spread. Furthermore, management expects to run faster than the declines in glass prices, thus narrowing the existing gap with competitors in terms of price. This last strategy seems to be good.

Least but not last, the increase in the sale of Gorilla Glass and the benefits the telecommunications segment has received due to permanent deployments of fiber-to-the home and data center build-outs have brought about strong results allowing a better distribution of income across Corning's segments.

After all I have said how can I actually assess if Corning is worth investing in? Well, I always use valuation methods and I think that one of the methods that can precisely tell me if I should invest in Corning is the margin of safety method. I always try to be on the safe side and this method is a type of insurance policy that can protect me from both bad and good news (indeed in this case, I have both). The margin of safety is the discount to fair value necessary before stocks are recommended. The margin is larger in less predictable stocks and shorter in more predictable ones.

By analyzing Corning's current multiples I have no doubt that the stock is undervalued.


The Historical Valuation chart show us that GLW is trading in the low of either the P/E, P/S and P/B band. This is a superb feature for Premium GuruFocus members only.

Also, GLW is trading in the low historical range of the P/TB, P/B and P/S ratios.




In conclusion, I believe that, despite the above-mentioned risks and the fact that Corning is considered cyclical and sensitive to economic changes, it will stabilize. The LCD and telecommunications market is and will continue increasing due to people's long for new high tech. This forecast of growth will finally reduce the risks and the price of shares sufficiently justify assuming them. Moreover, it has solid management with experience in the industry.

Let's not forget Corning is a leader in the glass substrate industry.

I think there is not much more to say. As an investor, I'm accustomed to assuming risks; why not this time?

About the author:

Federico Flom
Equity Research Analyst

Rating: 3.4/5 (15 votes)


Fkattan - 5 years ago    Report SPAM
Dear Federico, thanks for the article.

Have you estimated the earning power that GLW could have in the long term? Or is it difficult due to its lacking barries to entry?


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GuruFocus has detected 4 Warning Signs with Corning Inc $GLW.
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