Corning (NYSE: GLW) is Positioned to Overcome 2020 Struggles

Friday, July 24, 2020 | Nick Vasco
Corning (NYSE: GLW) is Positioned to Overcome 2020 StrugglesCorning (NYSE: GLW) extended its streak of daily increases to 11 yesterday, breaking above $30 a share before closing just under that level.

Last week, in the midst of that streak, JP Morgan (NYSE: JPM) upgraded Corning from Neutral to Overweight. Its price target was raised from $25 to $36.

Analyst Samik Chatterjee believes Corning will beat expectations for its display segment, which manufactures glass for televisions and computers, in Q2 and Q3. Chatterjee also sees growth in Corning’s other four segments.

While Chatterjee is optimistic about Corning’s future, the company is coming off a tough quarter.

Few Bright Spots in Q1 2020

Q1 2020 sales were around $2.5 billion for Corning and net income was $177 million. Here are the Q1 revenue numbers for each of the five segments:

  • Display Technologies sales were $751 million, down 8.2% yoy.
  • Optical Communications revenue came in at $791 million, down 25.7% yoy.
  • Environmental Technologies sales were $320 million, down 12% yoy.
  • Specialty Materials revenue was $352 million, up 14% yoy.
  • Life Sciences revenue was $258 million, up 6% yoy.

These numbers raise concerns, especially considering the weak performance of Display Technologies and Optical Communications, which account for more than 60% of Corning’s revenue. And while Specialty Materials and Life Sciences performed well, they only combine for around a quarter of Corning’s revenue.

The pandemic hurt sales as site access, health, and safety concerns, and supply chain disruptions compromised Corning’s business. Stay-at-home orders hurt end-user demand, with car and smartphone sales declining late in Q1.

Most of Corning’s businesses have high fixed costs, so even though the company has decreased production due to the lower demand, it hasn’t been able to reduce its costs by a corresponding amount. Q1 gross margin came in at 33.4%, below Corning’s expectations.

But There is Good News

According to Counterpoint, after a weak April in which smartphone sales were down 50% yoy, June sales were higher than June 2019. The virus shifted business to the internet, with e-commerce transactions accounting for 31% of phones sold in Q2 compared to 14% in Q2 2019.

A  lot of people put off previously planned upgrades in March and April due to store closures and uncertain economic situations. These effects are now lessening, and demand should continue to recover. And in the long run, 5G and the trend towards larger screens provide tailwinds to Corning’s Optical Communications and Specialty Materials segments.

Shifting gears to the Environmental Technologies business, which manufactures ceramic substrates and filter products for emissions control in mobile, gasoline, and diesel applications, Corning’s sales have suffered due to decreasing global car sales.

Sales may be light for the rest of the year, but traffic has already returned to pre-pandemic levels. While that doesn’t mean people are rushing to buy new cars, it is a sign that the pandemic is not keeping people off the roads. This could indicate that car sales won’t be as bad as previously feared in Q2, Q3, and Q4.

Is the Price Right?

Corning is trading at around 27.5x projected 2020 earnings and around 17.5x projected 2021 earnings, reflecting its current struggles but expected recovery in 2021.

The company pays a dividend of just under 3%, solid in this low-yield environment. It still expects to generate positive free cash flow this year, so the dividend doesn’t appear to be in jeopardy.

Corning has actually issued debt with 30, 50, and 60-year maturities. Its average debt maturity of around 25 years is the longest in the S&P 500.

The company does have nearly $8 billion in long-term debt, but the obligations are spread out and there is no single year with more than $500 million of debt repayments due. Corning’s $2 billion in cash and consistent cash flow should allow it to easily satisfy its obligations.

The bottom line, Corning looks like a good long-term play. It is positioned to weather the current storm, and moderate growth is possible in 2021 and beyond.

Corning (NYSE: GLW) is Positioned to Overcome 2020 Struggles

Where Can You Get In?

Corning has a good-looking chart with a clear up-trend. The 50-day moving average is about to cross over the 200-day moving average.

But now is not the time to get in. The aforementioned 11-session winning streak has sent shares into overbought territory on the RSI. The stock is extended from its 50-day and 200-day moving averages. And shares are now brushing against a lot of resistance from late last year, around $30 a share.

I’d look for one of these two scenarios before getting in:

  1. A pullback to the 50-day / 200-day moving average (which should remain close for some time).
  2. A consolidation around $30 for a few weeks, followed by a powerful breakout above $31.

The Final Word

Corning isn’t the type of company that is going to put together 3-5 straight years with double-digit revenue growth. But it is a strong company that is just dealing with temporary setbacks; it should recover quickly.

If the chart shapes up and you can pick up some shares, you may get a nice payoff over the next year or two.

 

Featured Article: How are Outstanding Shares Different from Authorized Shares?



7 Stocks to Support Your New Year’s Resolutions

After a year like 2020, many Americans figure that just getting to 2021 was enough. But for many people, the start of a new year still means making resolutions. And while many Americans are still waking up to Groundhog’s Day, there is hope that things will look dramatically different in September than they do right now.

Some of the most popular resolutions include losing weight, exercising more, or taking steps to get our life and/or business more organized. And many pure-play companies lean into these trends and are doing well.

As an alternative to this, you can also invest in companies that are not pure plays but can still benefit from consumers looking to start fresh. Owning these stocks helps you manage your risk. If the trend holds, you can ride the wave. On the other hand, if the wave turns into a ripple, the stocks have other catalysts to get them through.

In this special presentation, we’ll take a look at both of these categories. We’ve got several pure-play companies that let investors buy stocks in companies benefiting from these trends. We’ll also give you a few stocks that fall in the latter category.

These are stocks that you might buy at any time and for many reasons. However, they present excellent buys as the new year begins.

View the "7 Stocks to Support Your New Year’s Resolutions".


Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Corning (GLW)2.0$45.80flat2.10%229.00Buy$39.89
Compare These Stocks  Add These Stocks to My Watchlist 

MarketBeat - Stock Market News and Research Tools logo

MarketBeat empowers individual investors to make better trading decisions by providing real-time financial data and objective market analysis. Whether you’re looking for analyst ratings, corporate buybacks, dividends, earnings, economic reports, financials, insider trades, IPOs, SEC filings or stock splits, MarketBeat has the objective information you need to analyze any stock. Learn more.

MarketBeat is accredited by the Better Business Bureau

© American Consumer News, LLC dba MarketBeat® 2010-2021. All rights reserved.
326 E 8th St #105, Sioux Falls, SD 57103 | U.S. Based Support Team at [email protected] | (844) 978-6257
MarketBeat does not provide personalized financial advice and does not issue recommendations or offers to buy stock or sell any security. Learn more.

Our Accessibility Statement | Terms of Service | Do Not Sell My Information

© 2021 Market data provided is at least 10-minutes delayed and hosted by Barchart Solutions. Information is provided 'as-is' and solely for informational purposes, not for trading purposes or advice, and is delayed. To see all exchange delays and terms of use please see disclaimer. Fundamental company data provided by Zacks Investment Research. As a bonus to opt-ing into our email newsletters, you will also get a free subscription to the Liberty Through Wealth e-newsletter. You can opt out at any time.