With shares of Corning Inc. (NYSE:GLW) trading at around $16.35, 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:
C = Catalyst for the Stock’s Movement
Corning has been making new 52-week highs as of late, but is this trend sustainable? In this stock market environment, anything is possible. However, that doesn’t mean all moves are justifiable.
Corning Incorporated 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 has a diverse revenue base. There is currently high demand for tablets and smartphones, Gorilla Glass has received many positive reviews, Q1 estimates were recently beat, there have been cost and efficiency improvements, revenue has increased for three consecutive years, and the stock is at a good valuation, trading at 14 times earnings, while the industry trades at 19 times earnings. However, when you look at the breakdown for the last quarter, there is good reason for caution. The only segment that showed improvement was Life Sciences. Corning is confident in future growth, but that doesn’t mean confidence will lead to actual results.
On a quarterly basis, revenue has declined year-over-year as well as sequentially. It should also be noted that earnings have declined for two consecutive years. Other reasons for caution include contract negotiations with panel makers, Japanese yen depreciation, and a lack of resiliency. In regards to the latter, the stock didn’t hold up well during the financial crisis. If a similar environment were to present itself, Corning wouldn’t be a good place to hide.
Below is a look at some of Corning’s basic fundamentals.
|Operating Cash Flow||3.07B|
Let’s take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Strong
Corning has performed well year-to-date. However, it has underperformed the market over a three-year time frame.
|1 Month||Year-To-Date||1 Year||3 Year|
At $16.35, Corning is trading well above its averages.
E = Equity to Debt Ratio Is Strong
The debt-to-equity ratio is stronger than the industry average of 0.30. Debt management has been very good at Corning through the years.
E = Earnings Are Inconsistent
Earnings have been inconsistent, but revenue has been improving on an annual basis.
|Revenue ($) in millions||5,948||5,395||6,632||7,890||8,012|
|Diluted EPS ($)||3.37||1.28||2.25||1.77||1.15|
When we look at the last quarter on a year-over-year basis, we see a decline in revenue and increase in earnings.
|Quarter||Mar. 31, 2012||Jun. 30, 2012||Sep. 30, 2012||Dec. 31, 2012||Mar. 31, 2013|
|Revenue ($) in millions||1,920||1,908||2,038||2,146||1,814|
|Diluted EPS ($)||0.30||0.30||0.34||0.19||0.33|
Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
T = Trends Might Support the Industry
The television market has weakened, but there has been strength in smartphones and tablets. However, there has been weaker spending in the United States.
Corning has been a strong company for many years. The company culture is strong, which often indicates a winner. According to Glassdoor.com, employees have rated their employer a 3.6 of 5, and 80 percent of employees would recommend the company to a friend. Furthermore, 85 percent of employees approve of Wendell P. Weeks. It should also be noted that volumes and prices have improved. The dilemma is the economic environment we live in. There is a tremendous disconnect between Wall Street and Main Street. If all monetary stimuli were taken away tomorrow, where would the market be? No one knows the answer to that question. While this event won’t take place, there will eventually be a gradual exit. How durable will Corning be as this unfolds?
The 2.50 percent yield is enticing, and the stock is likely to see near-future appreciation. Therefore, it’s currently an OUTPERFORM. However, caution should be used as this stock doesn’t hold up well in difficult environments.
Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.
All content posted should not be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions.