Corning Inc. (GLW) is the leading global supplier of precision glass for liquid crystal displays, and a leader in the manufacture and sale of optical fiber and cable, notes Jim Kelleher, an analyst with Argus Research, a leading independent Wall Street research firm.
Top-line growth in 3Q20 was led by Specialty Materials, where Gorilla Glass is now being used for the ceramic shield used on iPhone 12; and by display technologies, benefited from surging at-home demand for PCs and large screen TVs.
The iPhone 12 launch featured Corning’s invention of the world’s first transparent, color-free glass ceramic. Corning paired with Apple (AAPL) to develop and scale manufacturing of ceramic shield. Samsung, another major smartphone maker, chose Gorilla Glass Victus for its Galaxy Note 20 Ultra launch.
Online demand and now physical retail demand for large screen TVs by homebound families continues to drive demand. The notebook PC market too is buzzing, and we look for desktop monitor demand to recover as workers gradually return to offices.
Optical communications has been in a multi-quarter decline as carriers shift priorities from passive optical networks to 5G wireless infrastructure.
The spring season surge in laying optical fiber did not materialize this year as technicians were not out in the field. Corning is supporting carriers’ efforts to strengthen core networks in advance of the anticipated flood in 5G-related traffic.
During 3Q20, the Life Sciences MAP continued to aid in the battle against the COVID-19 pandemic. The firmcontinues to advance its strategy of building a multibillion-dollar pharmaceutical glass business, aided by a long-term supply agreement to provide Valor Glass vials for Pfizer (PFE) drugs. Corning Life Sciences looks for strong sequential sales growth in 4Q20 to cap the year.
GLW is trading at 26.0-times our 2020 non-GAAP core EPS estimate and at 18.5-times our 2021 forecast. The two-year forward average P/E of 22.2 is now above the five-year (2015-2019) historical average P/E of 15.9. In a rising overall market, however, the relative P/E of 0.94 is close to the historical average of 0.90.
Price/sales and price/cash flow multiples remain below the five-year trend. Historical comparable valuation renders a value for GLW in the upper-$30s, now in a slightly rising trend and above current prices.
GLW trades at a premium to peers on P/E, but at discounts to peers on relative P/E and price/sales; peer-indicated value in the low $30s is just below or about in line with current prices.
Our discounted free cash flow model renders a long-term value for GLW in the $70s, in a rising trend. On a blended basis, we calculate a fair value in the low $50s, in a stable to rising trend and above current levels.
Appreciation to our 12-month target price of $42 (raised from $38), along with the annual dividend yield of about 2.3%, implies a risk-adjusted total return that exceeds our forecast for the broad market and is thus consistent with a "buy" rating .
