Corning: Glass Gains

02/12/2015 8:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Television screens keep getting bigger and mobile devices become more and more prevalent. Both trends work in favor of this glass supplier, explains Richard Moroney, editor of Dow Theory Forecasts.

In its December-quarter, Corning (GLW) reported earnings per share of $0.45 excluding special items, up 55% and exceeding the consensus by $0.07.

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.

Robust retail demand for larger TVs helped glass volumes exceed Corning’s expectations. 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.

The firm's specialty materials unit 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.

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.

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. Corning, with an Overall Quadrix score of 96, is being upgraded to a Buy.

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