Is Corning Undervalued?

With shares of Corning (NYSE:GLW) trading around $15, is GLW an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Corning produces and sells specialty glasses, ceramics, and related materials worldwide. It operates through five segments: Display Technologies, Telecommunications, Environmental Technologies, Specialty Materials, and Life Sciences. Corning launched Corning Lotus Glass, an environmentally friendly display glass for organic LED and LCD displays that are used in portable devices, such as smart phones, tablets, and notebook computers. Smart phones, tablets, and notebook computers and their related materials are seeing explosive growth in developed and developing countries around the world. Companies that provide the products necessary to develop and improve existing technology, like Corning, will see a continued rise in profits as consumers and companies demand products that maximize their efforts.

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T = Technicals on the Stock Chart are Strong

Corning stock has been stuck in a range extending back several years. The stock is now attempting to make a move higher after tagging the low-end of its multi-year range. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Corning is trading above its rising key averages which signal neutral to bullish price action in the near-term.

GLW

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Corning options may help determine if investors are bullish, neutral, or bearish.

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Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Corning Options

23.86%

10%

8%

What does this mean? This means that investors or traders are buying a low amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Average

Average

July Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, neutral over the next two months. To summarize, investors are buying a low amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Corning’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Corning look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

6.45%

-39.13%

-31.37%

-36.17%

Revenue Growth (Y-O-Y)

-5.52%

13.73%

-1.78%

-4.84%

Earnings Reaction

5.48%

0.65%

-9.39%

-7.7%

Corning has seen decreasing earnings and revenue figures over most of the last four quarters. From these figures, the markets have been mixed with Corning’s recent earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has Corning stock done relative to its peers, PPG Industries (NYSE:PPG), Dow Chemical (NYSE:DOW), Optical Cable (NASDAQ:OCC), and sector?

Corning

PPG Industries

Dow Chemical

Optical Cable

Sector

Year-to-Date Return

17.27%

13.88%

7.30%

12.01%

15.07%

Corning has been a relative performance leader, year-to-date.

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Conclusion

Corning provides essential products used in the production process of smartphones, notebooks, tablets, and other related products to companies and consumers around the world. The stock has been a strong performer recently as it is seeing a solid bounce off of the lower-end of a multi-year range. Earnings and revenue figures have been decreasing over most of the last four quarters which has sent mixed vibes to investors. Relative to its peers and sector, Corning has been a year-to-date performance leader. Look for Corning to OUTPERFORM.

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