Corning (GLW) had a good fourth quarter beating estimates in both EPS and revenue. Revenue, from a year ago, rose 14% to $2.15 billion while estimates were set at $2.07 billion. Earnings beat the street by 2 cents ($0.34 compared at $0.32). The company was pleased to announce that gorilla glass, used in the construction of smartphones and tablets (including Apple products) exceeded $1 billion for the year for the first time. The strength of this "glass" sales helped drive its "Specialty Material" sales up 68 percent when measured year over year, and up 10 percent from the previous quarter. CEO Wendell Weeks put it this way:
"Corning made good progress in 2012, despite some challenging economic conditions and changing market environments, we set a record for annual sales performance and increased our dividend by 20 percent."
Gorilla glass sales are good now, but down the road new competition may come about from Samsung's flexible displays. That is another article for the future. As for right now, Corning has a solid lock on the market.
With a good fourth quarter, are investors looking at good news and sales to continue into early 2013?
Barclays Capital analyst Amir Rozwadowski does not have a favorable outlook on Corning as we move deeper into 2013. He cut his rating on Corning shares to Equal Weight from Overweight, keeping a $13 target on the stock. Even though Corning has some things going for it; it is in a leading market position, has a strong product portfolio, and it appears the likelihood for increasing free cash flow looks attractive, the problem with currency exchange rates and a cooling LCD TV market (after the holiday rush) leads him to believe that the near term prospects for Corning's growth are not favorable. With the New Year, the sluggish global markets will rear their heads again and it may be the second half of the year before the company sees any improvement again. At least this is his opinion.
That is one conservative approach to look at Corning. Topeka Capital Markets takes a different outlook. Topeka Capital believes the tough LCD markets over the last couple of years combined with present currency issues continues to make Corning a stock that has fallen out of favor with investors and the stock trades below tangible book value. Yet-this is a certain kind of romance with the stock because the display markets could pick up at anytime if a good economic report comes in. Topeka believes any hint of good news for the LCD industry or Corning specifically could drive a sharp rally in the stock price from depressed levels.
So here we have two differing points of view on how investors should look at Corning.
Is there a good position to enter GLW or should one enter now anticipating a rally that (MAY) occur? Amir at Barclay Capital believes a good entry point for an investor would be when (and if) the stock drops around $11.00. Topeka Capital believes the stock could rally at a moment's notice on good news in any number of areas, and the rally could be substantial and short. Should investors consider getting into the stock now just in case?
As investors look at Corning, there are two important factors early in 2013 to consider before making an investment decision.
Hemlock Semiconductor Group, a subsidiary of Dow Corning, is expected to continue to face unfavorable conditions in its solar market in 2013. There is an important trade ruling for China dealing with the importance of solar polysilicon. Polysilicon used in solar panels, is set to extend its rebound from a decade low as China moves to impose duties on importers. Spot prices will jump as much as 39 percent this year to $22 a kilogram ($9.98 a pound), according to the median estimate in a Bloomberg survey of seven analysts. China plans to issue a draft ruling in February on dumping and unfair subsidy allegations made against foreign suppliers such as South Korea's OCI Ltd., Hemlock Semiconductor Corp. of the U.S. and Wacker. If 2013 picks up where 2012 left off, Corning may be forced to do some restructuring and further impairments on Hemlock. This could affect Corning who owns Dow Corning along with Dow Chemical (DOW).
Besides challenges to Hemlock's solar industry, Corning could be facing currency valuation problems. The yen has greatly depreciated against the U.S. dollar and this could have a negative impact upon net earnings in 2013 if things remain as they are.
So there you have the near term challenges Corning will be dealing with in early 2013. Should one wait until the stock recedes closer to $11.00 per share before investing, or should one position oneself in the stock now for a possible short term rally is news comes in favorably for the stock? I guess it depends on your philosophy.