Is Corning a Buy After Earnings?

With shares of Corning (NYSE:GLW) trading around $17, 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 in five segments: Display Technologies, Telecommunications, Environmental Technologies, Specialty Materials, and Life Sciences. Corning has launched Corning Lotus Glass, an environmentally friendly display glass for organic LED and LCD displays that are used in portable devices such as smartphones, tablets, and notebook computers. Smart phones, tablets, notebook computers, and their related materials are seeing explosive growth in developed and developing countries around the world.

Samsung Electronics’s (SSNLF.PK) purchase of Corning shares and a glass supply agreement between the two companies will last until 2023. Samsung Display is buying $2.3 billion worth of shares in Corning, according to a statement from Corning, making Samsung’s combined stake in Corning 7.4 percent. The Samsung purchase is expected to close in the first quarter of 2014.

T = Technicals on the Stock Chart Are Strong

Corning stock has been moving higher in the past couple of years. Currently, the stock is trading at highs for the year. 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 signals neutral to bullish price action in the near term.

GLW

Source: Thinkorswim

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Corning Options

38.14%

96%

93%

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

Put IV Skew

Call IV Skew

November Options

Flat

Average

December Options

Flat

Average

As of Wednesday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

E = Earnings Are Increasing 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

18%

38.71%

6.45%

-39.13%

Revenue Growth (Y-O-Y)

10%

3.88%

-5.52%

13.73%

Earnings Reaction

10.92%*

-1.29%

5.48%

0.65%

Corning has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Corning’s recent earnings announcements.

*As of this writing.

P = Weak Relative Performance Versus Peers and Sector

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

Corning

PPG Industries

Dow Chemical

Optical Cable

Sector

Year-to-Date Return

21.63%

33.08%

28.52%

8.85%

24.02%

Corning has been a weak relative performer, year-to-date.

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. Samsung is reportedly set to purchase a large number of shares of the company. The stock has been moving higher and is currently trading at highs for the year. Over the last four quarters, earnings and revenue figures have increased, which has left investors pleased with the company. Relative to its peers and sector, Corning has been a weak year-to-date performer. Look for Corning to OUTPERFORM.

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