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This Stock Is a Clear Tech Winner
11/29/2011 8:15 am EST
Although this company has been around for more than a century, it’s one of the hottest tech companies around, writes Taesik Yoon of Forbes Growth Investor.
Corning (GLW) is a leading global provider of high-technology glass and ceramic substrates.
Its largest segment, Display Technologies, which was responsible for 39.4% of first-half net sales, makes glass substrates for liquid crystal displays (LCDs) found in flat-screen televisions, notebook computers, and desktop PC monitors.
GLW’s Telecommunications segment (26.1% of sales) makes optical fiber and cable, and related hardware and equipment, for Internet and cable-television providers.
The company’s Specialty Materials segment (13.7% of sales) produces glass, ceramic, and fluoride crystal products for specialized display applications.
This last segment has enjoyed exceptionally strong growth over the past year due to greater demand for its durable Gorilla Glass-brand displays, which are quickly becoming the screen of choice among manufacturers of smartphones and other portable media devices.
GLW also makes ceramic substrates and filters used to control emissions in gasoline and diesel engines (13.2% of sales). The remainder of its revenues was derived from the sale of glass and plastic laboratory tools.
GLW also earns a significant amount of income from joint ventures and other business investments. This includes a 50% stakes in Samsung Corning Precision Glass Co., a joint-venture with Samsung that sells glass to Korean LCD panel makers, and Dow Corning, a maker of silicone products for the semiconductor and solar-energy industries.
Robust sale of glass display panels, driven by steady demand for flat-screen televisions and the popularity of its Gorilla Glass products, led to a strong rebound in 2010. Net sales and adjusted earnings climbed 23% and 53% from the prior year, respectively, to $6.63 billion and $2.07 per share.
Growth in the current year has been tougher to come by. Net sales in its recently reported third quarter rose 30% year-over-year to $2.08 billion, but adjusted net income fell 5% to $766 million or 48 cents per share.
Nevertheless, the results were better than expected, with earnings coming in 6 cents ahead of the consensus estimate. These results helped the stock rebound from a multiyear low of under $12 per share on October 3.
Shares have also benefited from GLW’s decision to raise quarterly dividends by 50% to 7.5 cents per share—representing the company’s first increase in five years. GLW also announced it will buy back up to $1.5 billion in common stock over the next 15 months, citing what it sees as an imbalance between the long-term value of its businesses and the current stock price.
Particularly encouraging was the fact that shares rose despite providing fourth-quarter outlook that suggests near-term market conditions will remain soft. Due to excess market inventory, LCD glass volume in its wholly-owned business will likely be flat to down slightly, on a sequential basis, with more pronounced pricing pressure expected.
However, GLW may have allayed investor fears that current market conditions could result in a repeat of the challenging market environment that plagued 2008, which was also marked by industry oversupply and price erosion. Indeed, GLW believes that once the supply chain correction ends, glass demand will be more in line with the growth in retail demand for LCD products, which the company expects to be up 13% for the year.
Despite recent gains, the stock sells for less than 8 times its consensus estimate of $1.83 per share for the current year. Thus, it continues to represent a great buying opportunity.
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