Topeka Capital analyst Brian White advises investors to invest in Corning (GLW) which he rates a buy. Now why would he rate them a buy? I believe we may have to go back and explore why the struggling company has been on a bullish run since the end of November 1.
Origin of Corning's Latest Bullish Run
At the end of November, just before this rally started, Corning announced that fourth quarter demand for its products are running stronger than expected. This was a nice surprise for the market. The holiday season is lifting the demand for U.S. LCD televisions. They expect the glass market volume to rise in single digits this quarter instead of down single digits like it previous expected. This announcement came even though Corning expected LCD glass prices to continue to be lower in the fourth quarter and this included gorilla glass products.
Tony Tripeny, Corporate Controller stated:
"Our recent business performance, particularly the strength of LCD glass sales and continued growth of Gorilla Glass, is a solid indication that Corning is on the path to resuming earnings growth,"
What Happens After the Fourth Quarter?
So it is the increase in LCD TV sales in North America during this holiday season that is exciting investors about Corning's earnings. But can it keep up the good news? Up to this point the company has battled decreasing sales and dwindling earnings that can find their origins in declining LCD prices and shipment volumes. Look at these statistics from the third quarter globally:
- Worldwide LCD TV sales declined 1% y-o-y in Q3.
- The North America market remained flat.
- In China TV shipments increased 13% y-o-y in Q3 driven by holiday shopping.
- In Japan, TV shipments were down 70% y-o-y.
- Western Europe shipments declined 15% y-o-y in Q3.
Demand for the products are low because of all the known global catalysts: the high unemployment rate, slowing growth in developing economies and high penetration of flat panel TVs in households. On the supply side, declining LCD prices has caused manufacturers to focus on creating a better margin of profitability instead of focusing on volume and sales.
After this fourth quarter, there is a good chance the anemic economic growth, high levels of unemployment, and market uncertainty will again claim lower sales as the norm. This chemistry makes a good argument for keeping global TV sales and shipments flat through 2013. Since the LCD business of Corning constitutes nearly 52% of the total company value, according to Trefis estimates, the company may perform in familiar patterns to 2012.
(click to enlarge)
Technically Speaking
Corning has had quite a ride this fall. From a large gap down to a large gap up, the stock has not moved much when all is said and done. It presently sits just three fourths of a point below its high of 13.75+ in mid October. Since the gap up, the stock continues to look like it will keep moving. The gap pushed the stock outside the upper Bollinger band and the stock has been moving inside the band, but not hugging the upper band. The RSI indicator has continually moved up and is not over bought just yet, but appears to be getting close. The MACD is also looking like it is leveling out. I would not be surprised if the stock topped off and backed off its present high (or soon to be present high).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
